<PAGE>
As Filed With The Securities And Exchange Commission On May 5, 2000
File Nos. 33-73408 and 811-8234
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. __ ( )
Post-Effective Amendment No. 11 (X)
--
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 15
TIFF INVESTMENT PROGRAM, INC.
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(Exact Name of Registrant as Specified in Charter)
2405 Ivy Road, Charlottesville, VA 22903
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(Address of Principal Executive Offices) (Zip Code)
(800) 984-0084
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(Registrant's Telephone Number, Including Area Code)
David A. Salem, President, Foundation Advisers, Inc., 2405 Ivy Road,
Charlottesville, VA 22903
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(Name and Address of Agent for Service of Process)
With a Copy to:
William E. Vastardis
Investors Capital Services, Inc.
600 Fifth Avenue, 26/th/ Floor
New York, New York 10020
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b)
/ / On _________, pursuant to paragraph (b)
/ / 60 days after filing, pursuant to paragraph (a)(1)
/ / On ____, pursuant to paragraph (a) (1)
/X/ 75 days after filing, pursuant to paragraph (a) (2)
/ / On _________, pursuant to paragraph (a) (2) of Rule 485.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
TIFF Prospectus
INVESTMENT
PROGRAM July __, 2000
Subject to Completion
TIFF Multi-Asset Fund Available through:
TIFF International Equity Fund Foundation Advisers, Inc.
TIFF Emerging Markets Fund 2405 Ivy Road
TIFF US Equity Fund Charlottesville, VA 22903
TIFF US Equity Index Fund phone: 804-817-8200
TIFF Bond Fund fax: 804-817-8231
TIFF Government Bond Index Fund
TIFF Inflation-Linked Bond Fund
TIFF Short-Term Fund
TIFF Investment Program, Inc. is a no-load, non-diversified, open-end management
investment company that seeks to improve the net investment returns of its
shareholders by making available to them a series of investment vehicles, each
with its own investment objective and policies. The funds are available to
foundations and other 501(c)(3) organizations.
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The Securities and Exchange Commission has not approved any fund's shares as an
investment or determined whether this prospectus is accurate or complete.
Anyone who states otherwise is committing a crime.
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<PAGE>
Contents
<TABLE>
<S> <C>
Risk Return Analysis
Fund Descriptions.................................................... 3
General Risks........................................................12
Performance Charts...................................................14
Performance Table....................................................15
Fees and Annual Operating Expenses.....................................16
Eligible Investors.....................................................17
Management and Administration of the Funds.............................17
Biographies of Unpaid Directors......................................18
Biographies of Officers..............................................20
Money Managers.......................................................21
Investment Objectives, Policies, and Restrictions......................24
Purchases and Redemptions..............................................24
Dividends and Distributions............................................26
Tax Considerations.....................................................26
Financial Highlights...................................................29
Inquiries..............................................................32
Money Manager Profiles.........................................Appendix A
Service Provider Profiles......................................Appendix B
</TABLE>
<PAGE>
Risk Return Analysis -- Fund Descriptions
TIFF Multi-Asset Fund
Investment Objective. The Fund's investment objective is to attain a growing
stream of current income and appreciation of principal that at least offsets
inflation as measured by the US Consumer Price Index.
Investment Strategies. The Fund seeks to outperform its Constructed MAF
Benchmark (defined on page 12) primarily through active security selection
within asset class segments. The Fund retains Money Managers it believes can
select securities that will outperform the securities comprising each segment of
the Constructed MAF Benchmark. The Money Managers use an array of investment
philosophies, which range from investing in US and international securities
(both large and small cap) to actively managing duration to investing in
distressed securities. For a more complete description of FAI's process of
selecting Money Managers, please see the section below entitled Management and
Administration of the Funds -- Money Managers. For a more complete description
of the Money Managers and their investment philosophies, please refer to
Appendix A.
Performance Benchmark. The Fund seeks to attain a total return exceeding
inflation plus 5% per annum over the long term. To facilitate assessment of
active strategies employed by the Fund, the Fund also measures its performance
relative to a constructed benchmark including stocks, bonds, and short-term
securities (Constructed MAF Benchmark), net of all expenses, on an annualized
basis over a market cycle. TIP's directors believe this Constructed MAF
Benchmark constitutes an appropriate long-term asset mix for organizations which
seek to maintain the real or inflation-adjusted value of their invested assets
while distributing annually 5% of such assets.
Investment Universe. The Fund will invest broadly in the available universe
of securities domiciled in the United States plus at least 10 other countries.
Many of these securities will be denominated in currencies other than the US
dollar. Under normal circumstances, up to 40% of the Fund's assets may be
invested in emerging markets securities.
Principal Investments. The types of securities the Fund will hold include
US and foreign common stocks (including depositary receipts), debt securities of
all grades (such as those listed in the descriptions of the Bond and Short-Term
Funds), securities convertible into common stocks, securities of commingled
investment vehicles, financial futures contracts, and forward foreign currency
exchange contracts. Ordinarily, the Fund will invest at least 80% of its assets
in these securities.
Risks. A loss of invested assets could occur due to certain risks. These
include:
. correlation risk . foreign risk . liquidity risk
. credit risk . futures risk . market risk
. currency risk . hedging risk . non-diversification risk
. emerging markets risk . interest rate risk . prepayment risk
A description of these risks is provided in the section below entitled General
Risks.
<PAGE>
Risk Return Analysis -- Fund Descriptions
TIFF International Equity Fund
Investment Objective. The Fund's investment objective is to attain a growing
stream of current income and appreciation of principal that at least offsets
inflation as measured by the US Consumer Price Index.
Investment Strategies. The Fund seeks to outperform its performance benchmark
(defined below) primarily through two key investment strategies:
1 -- Active Security Selection within Countries. The Fund retains Money
Managers it believes can select securities that will outperform the securities
of a given country.
2 -- Country Allocation. The Fund retains Money Managers that can potentially
enhance the Fund's returns by rotating Fund assets among various countries in a
timely manner.
The Money Managers use an array of investment philosophies, including value
investing, small company investing, and bottom-up or top-down approaches. For a
more complete description of FAI's process of selecting Money Managers, please
see the section below entitled Management and Administration of the Funds --
Money Managers. For a more complete description of the Money Managers and their
investment philosophies, please refer to Appendix A.
Performance Benchmark. The Fund seeks to attain a total return that exceeds
the net total return (after withholding taxes) of the Morgan Stanley Capital
International All Country World Free ex US Stock Index by 1.00%, net of all
expenses, on an annualized basis over a market cycle.
Investment Universe. The Fund will invest broadly in the available universe
of common stocks of companies domiciled in at least 10 countries other than the
United States. Most of these securities will be denominated in currencies other
than the US dollar. Under normal circumstances, up to 30% of the Fund's assets
may be invested in emerging markets securities.
Principal Investments. The types of securities the Fund will hold include
non-US common stocks (including depositary receipts), securities convertible
into common stocks, securities of investment companies and other commingled
investment vehicles, securities of US companies that derive a significant
portion of revenues (e.g., greater than 50%) from foreign operations,
subscription rights, warrants, futures contracts, and forward foreign currency
exchange contracts. Ordinarily, the Fund will invest at least 80% of its assets
in these securities but no less than 65% in international securities.
Risks. A loss of invested assets could occur due to certain risks. These
include:
. correlation risk . foreign risk . liquidity risk
. currency risk . futures risk . market risk
. emerging markets risk . hedging risk . non-diversification risk
A description of these risks is provided in the section below entitled General
Risks.
<PAGE>
Risk Return Analysis -- Fund Descriptions
TIFF Emerging Markets Fund
Investment Objective. The Fund's investment objective is to attain a growing
stream of current income and appreciation of principal that at least offsets
inflation as measured by the US Consumer Price Index.
Investment Strategies. The Fund seeks to outperform its performance benchmark
(defined below) primarily through two key investment strategies:
1 -- Active Security Selection within Countries. The Fund retains Money
Managers it believes can select securities that will outperform the securities
of a given country.
2 -- Country Allocation. The Fund retains Money Managers that can potentially
enhance the Fund's returns by rotating Fund assets among various countries in a
timely manner.
The Money Managers use an array of investment philosophies, ranging from bottom-
up to top-down approaches, value orientation, and investing in discounted
closed-end funds. For a more complete description of FAI's process of selecting
Money Managers, please see the section below entitled Management and
Administration of the Funds -- Money Managers. For a more complete description
of the Money Managers and their investment philosophies, please refer to
Appendix A.
Performance Benchmark. The Fund seeks to attain a total return that exceeds
the net total return (after withholding taxes) of the Morgan Stanley Capital
International Emerging Markets Free Stock Index by 1.00%, net of all expenses,
on an annualized basis over a market cycle.
Investment Universe. Emerging markets include any countries having an
"emerging stock market" as defined by Morgan Stanley Capital International, with
low- to middle-income economies according to the World Bank, or listed in World
Bank publications as developing. In order to exploit circumstances in which
the Fund's Money Managers believe that securities traded primarily in developed
markets are more attractively priced than securities traded primarily in
emerging markets, the Fund may invest in these developed markets. The Fund may
also invest in securities of US companies which derive, or are expected to
derive, a significant portion of their revenues from their foreign operations.
Under normal circumstances, up to 30% of the Fund's assets may be invested in
developed market securities and up to 15% of the Fund's assets may be invested
in securities issued by US companies.
Principal Investments. The types of securities the Fund will hold include
non-US common stocks (including depositary receipts), securities convertible
into common stocks, securities of investment companies and other commingled
investment vehicles, securities of US companies that derive a significant
portion of revenues from foreign operations, subscription rights, warrants,
futures contracts, and forward foreign currency exchange contracts. Ordinarily,
the Fund will invest at least 80% of its assets in these securities but no less
than 65% in emerging market securities.
Risks. A loss of invested assets could occur due to certain risks. These
include:
. correlation risk . foreign risk . liquidity risk
. currency risk . futures risk . market risk
. emerging markets risk . hedging risk . non-diversification risk
A description of these risks is provided in the section below entitled General
Risks.
<PAGE>
Risk Return Analysis -- Fund Descriptions
TIFF US Equity Fund
Investment Objective. The Fund's investment objective is to attain a growing
stream of current income and appreciation of principal that at least offsets
inflation as measured by the US Consumer Price Index.
Investment Strategies. The Fund seeks to outperform its performance benchmark
(defined below) primarily through two key investment strategies:
1 -- Active Security Selection. The Fund retains Money Managers it believes
can select securities that will outperform the securities of a given sector.
2 -- Sector Allocation. The Fund retains Money Managers that can potentially
enhance the Fund's returns by rotating Fund assets among various industry and
economic sectors in a timely manner.
The Money Managers use an array of investment philosophies, which include
actively managing risk, trading in small publicly traded stocks, and investing
in value-oriented securities. For a more complete description of FAI's process
of selecting Money Managers, please see the section below entitled Management
and Administration of the Funds -- Money Managers. For a more complete
description of the Money Managers and their investment philosophies, please
refer to Appendix A.
Performance Benchmark. The Fund seeks to attain a total return exceeding
the total return of the Wilshire 5000 Stock Index by 1.25%, net of all expenses,
on an annualized basis over a market cycle.
Investment Universe. The Fund will invest broadly in the available universe
of common stocks of companies domiciled in the United States. Under normal
circumstances, up to 15% of the Fund's assets may be invested in common stocks
of foreign issuers.
Principal Investments. The types of securities the Fund will hold include
US and foreign common stocks (including depositary receipts), securities
convertible into common stocks, securities of investment companies and other
commingled investment vehicles, subscription rights, warrants, and futures
contracts. Ordinarily, the Fund will invest at least 80% of its assets in these
securities but no less than 65% in US securities.
Risks. A loss of invested assets could occur due to certain risks. These
include:
. correlation risk . foreign risk . market risk
. credit risk . hedging risk . non-diversification risk
. futures risk . liquidity risk
A description of these risks is provided in the section below entitled General
Risks.
<PAGE>
Risk Return Analysis -- Fund Descriptions
TIFF US Equity Index Fund
Investment Objective. The Fund's investment objective is to attain a growing
stream of current income and appreciation of principal that at least offsets
inflation as measured by the US Consumer Price Index.
Investment Strategies. The Fund seeks to equal the total return of its
performance benchmark (described below) through passive management. The Money
Manager uses a statistical sampling technique to replicate the characteristics
and performance of the performance benchmark. For a more complete description
of FAI's process of selecting Money Managers, please see the section below
entitled Management and Administration of the Funds -- Money Managers. For a
more complete description of the Money Manager and its investment philosophy,
please refer to Appendix A.
Performance Benchmark. The Fund seeks to attain a total return equal to
that of the Wilshire 5000 Index on an annualized basis. The Wilshire 5000 Index
consists of all US common stocks regularly traded on the New York and American
Stock Exchanges and the Nasdaq over-the-counter market.
Investment Universe. The Fund will selectively invest in the common stocks
of the companies comprising the Wilshire 5000 Index.
Principal Investments. The types of securities the Fund will hold include
US common stocks and stock index futures contracts. Ordinarily, the Fund will
invest at least 80% of its assets in these securities.
Principal Risks. A loss of invested assets could occur due to certain risks.
These include:
. correlation risk . market risk . tracking risk
. futures risk . non-diversification risk
A description of these risks is provided in the section below entitled General
Risks.
<PAGE>
Risk Return Analysis -- Fund Descriptions
TIFF Bond Fund
Investment Objective. The Fund's investment objective is to attain a high rate
of current income, subject to restrictions designed to ensure liquidity and
manage exposure to interest rate and credit risk and to provide a hedge against
deflation-induced declines in common stock prices and dividend streams.
Investment Strategies. The Fund seeks to outperform its performance benchmark
(the Lehman Brothers Aggregate Bond Index) through the use of duration, quality,
and interest rate management, dollar roll transactions, hedging, repurchase and
reverse repurchase agreements, and short sales. The Fund's maturity and
duration will typically range between 80% and 120% of that of its performance
benchmark. The Money Managers use an array of investment philosophies,
including duration exposure, maturity selection, sector allocation, and credit
analysis. Duration measures the expected life of a debt security on a present
value basis. For a more complete description of FAI's process of selecting
Money Managers, please see the section below entitled Management and
Administration of the Funds -- Money Managers. For a more complete description
of the Money Managers and their investment philosophies, please refer to
Appendix A.
Performance Benchmark. The Fund seeks to outperform the Lehman Brothers
Aggregate Bond Index by 0.50%, net of all expenses, on an annualized basis over
a market cycle.
Investment Universe. The Fund will invest broadly in the available universe
of debt securities. Under normal circumstances, up to 40% of the Fund's assets
may be invested in non-dollar denominated securities and up to 30% of the Fund's
assets may be exposed to foreign currency exchange risk (i.e., invested in non-
dollar denominated securities on an unhedged basis). The Fund may own debt
securities of all grades, including both rated and unrated securities, provided,
however, that not more than 10% of its assets may be invested in securities that
are rated below investment grade (i.e., BBB by Standard & Poors Corporation or
Baa by Moody's Investors Service, Inc.). (See the Statement of Additional
Information for quality rating descriptions.)
Principal Investments. The Fund will invest primarily in US and non-US
debt securities, including:
. securities issued or guaranteed by the US Government and its agencies or
instrumentalities;
. obligations of domestic or foreign corporations or other entities;
. obligations of domestic or foreign banks;
. mortgage- and asset-backed securities; and
. short-term securities such as time deposits, certificates of deposit
(including marketable variable rate certificates of deposit), and bankers'
acceptances issued by a commercial bank or savings and loan association.
Ordinarily, the Fund will invest at least 80% of its assets in these securities.
Risks. A loss of invested assets could occur due to certain risks. These
include:
. correlation risk . foreign risk . liquidity risk
. credit risk . hedging risk . market risk
. futures risk . interest rate risk . non-diversification risk
. prepayment risk
A description of these risks is provided in the section below entitled General
Risks.
<PAGE>
Risk Return Analysis -- Fund Descriptions
TIFF Government Bond Index Fund
Investment Objective. The Fund's investment objective is to attain a high rate
of current income, subject to restrictions designed to ensure liquidity and
manage exposure to interest rate and credit risk and to provide a hedge against
deflation-induced declines in common stock prices and dividend streams.
Investment Strategies. The Fund seeks to equal the total return of its
performance benchmark (described below) through passive management. The Money
Manager uses a statistical sampling technique to replicate the characteristics
and performance of the performance benchmark. For a more complete description
of FAI's process of selecting Money Managers, please see the section below
entitled Management and Administration of the Funds -- Money Managers. For a
more complete description of the Money Manager and its investment philosophy,
please refer to Appendix A.
Performance Benchmark. The Fund seeks to attain a total return equal to
that of the Lehman Government 5+ Year Index on an annualized basis. The Lehman
Government 5+ Year Index consists of fixed income securities issued or
guaranteed by the US Treasury Department and various US government agencies with
five or more years remaining until final maturity.
Investment Universe. The Fund will invest in selected debt securities that
comprise the performance benchmark. These securities include callable and non-
callable Treasury and Government Agency bonds with five or more years until
maturity.
Principal Investments. The Fund will invest at least 65% of its assets in
US government debt securities, including securities issued or guaranteed by the
US Treasury and US government agencies or instrumentalities, and futures
contracts. Ordinarily, the Fund will invest at least 80% of its assets in these
securities.
Principal Risks. A loss of invested assets could occur due to certain risks.
These include:
. correlation risk . interest rate risk . tracking risk
. futures risk . market risk
A description of these risks is provided in the section below entitled General
Risks.
<PAGE>
Risk Return Analysis -- Fund Descriptions
TIFF Inflation-Linked Bond Fund
Investment Objective. The Fund's investment objective is to attain a high rate
of current income, subject to restrictions designed to ensure liquidity and
manage exposure to interest rate and credit risk and to provide a hedge against
reductions in purchasing power due to inflation as well as deflation-induced
declines in common stock prices and dividend streams.
Investment Strategies. The Fund seeks to equal the total return of its
performance benchmark (described below). The Money Manager, FAI, replicates the
duration and other characteristics and performance of the performance benchmark
through passive ownership of one or more Treasury inflation protected
securities. Duration measures the expected life of a debt security on a present
value basis. For a more complete description of FAI, please see the section
below entitled Management and Administration of the Funds -- The Adviser.
Performance Benchmark. The Fund seeks to attain a total return equal to
that of the current 10-year Treasury inflation protected security on an
annualized basis.
Investment Universe. The Fund will invest in Treasury inflation protected
securities. Treasury inflation protected securities are bonds issued by the US
Treasury Department whose principal value adjusts to reflect changes in the
Consumer Price Index.
Principal Investments. The Fund will primarily invest in Treasury
inflation protected securities and futures contracts. Ordinarily, the Fund will
invest at least 80% of its assets in these securities.
Principal Risks. A loss of invested assets could occur due to certain risks.
These include:
. correlation risk . interest rate risk . tracking risk
. futures risk . market risk
A description of these risks is provided in the section below entitled General
Risks.
<PAGE>
Risk Return Analysis -- Fund Descriptions
TIFF Short-Term Fund
Investment Objective. The Fund's investment objective is to attain a high rate
of current income, subject to restrictions designed to ensure that the Fund's
interest rate risk does not exceed the interest rate risk of a portfolio
invested exclusively in six-month US Treasury securities on a constant maturity
basis.
Investment Strategies. The Fund seeks to outperform its performance benchmark
(defined below) through the use of duration, quality, and interest rate
management, dollar roll transactions, hedging, repurchase and reverse repurchase
agreements. The Money Managers use various investment philosophies, such as
duration exposure, maturity selection, sector allocation, and credit analysis.
For a more complete description of FAI's process of selecting Money Managers,
please see the section below entitled Management and Administration of the Funds
- -- Money Managers. For a more complete description of the Money Managers and
their investment philosophies, please refer to Appendix A.
Performance Benchmark. The Fund seeks to outperform the Merrill Lynch 182-
day Treasury bill Index, net of all expenses.
Principal Investments. The Fund will invest primarily in short-term (i.e.,
maturity of one year or less) US and non-US debt securities, including:
. securities issued or guaranteed by the US Government and its agencies or
instrumentalities;
. obligations issued or guaranteed by a foreign government, or any of its
political subdivisions, authorities, agencies, or instrumentalities or by
supranational organizations;
. obligations of domestic or foreign corporations or other entities;
. obligations of domestic or foreign banks;
. mortgage- and asset-backed securities; and
. short-term securities such as time deposits, certificates of deposit
(including marketable variable rate certificates of deposit), and bankers'
acceptances issued by a commercial bank or savings and loan association.
Ordinarily, the Fund will invest at least 80% of its assets in investment-grade
securities.
Risks. A loss of invested assets could occur due to certain risks. These
include:
. correlation risk . foreign risk . liquidity risk
. credit risk . hedging risk . market risk
. futures risk . interest rate risk . non-diversification risk
. prepayment risk
A description of these risks is provided in the section below entitled General
Risks.
<PAGE>
Risk Return Analysis -- General Risks
Risks. Investment in any mutual fund has inherent risks. There can be no
assurance that the investment objectives of a fund will be realized or that a
fund's portfolio will not decline in value. Economic conditions change and
stock markets are volatile. If the investment advisor to a fund judges market
conditions incorrectly, the fund's portfolio may decline in value and an
investor could lose money. Prospective members should consider their own risk
tolerance, investment goals, and investment timeframe before committing assets
to the TIFF mutual funds. General risks associated with the funds' investment
policies and investment strategies are as follows:
Correlation Risk. The value of a particular derivative instrument may not move
in the same magnitude or direction as its related security.
Credit Risk. A security issuer or counterparty to a contract may default or
otherwise become less likely to honor a financial obligation.
Currency Risk. Fluctuations in exchange rates between the US dollar and foreign
currencies may negatively affect an investment. When hedges are used, the net
exposure of a fund to a currency may be different from that of its total assets
denominated in such currency.
Emerging Markets Risk. Emerging market countries can have relatively unstable
governments, may be highly vulnerable to changes in local or global trade
conditions, or may suffer from volatile debt burdens or inflation rates. As a
result, such securities can be especially volatile and unpredictable.
Foreign Risk. Historically, non-US developed markets are not as unpredictable
as emerging markets, but they can still pose significant risks, including
inadequate financial information and regulation, excessive taxation, and
political instability.
Futures Risk. The primary risks of using futures are related to the Money
Managers' ability to anticipate correctly the direction of movements in interest
rates, securities prices, and foreign currency exchange rates, and the imperfect
correlation between the price of futures contracts and movements in the prices
of the securities being hedged.
Hedging Risk. Hedging involves risks of imperfect correlation in price movements
of the hedge and movements in the price of the hedged security. If interest or
currency exchange rates do not move in the direction of the hedge, the Fund will
be in a worse position than if hedging had not been employed. The variable
degree of correlation between price movements of futures contracts and price
movements of the related security creates the possibility that losses could be
greater than gains.
Interest Rate Risk. Bond prices typically fluctuate due to changing interest
rates. As a rule, bond prices vary inversely with market interest rates. For a
given change in interest rates, longer duration bonds usually fluctuate more in
price than shorter duration bonds. In addition, falling interest rates will
cause a bond fund's income to decline.
Liquidity Risk. Certain securities may be difficult or impossible to purchase,
sell, or convert to cash quickly at favorable prices.
<PAGE>
Risk Return Analysis -- General Risks continued
Market Risk. The market value of a security may increase or decrease over time.
Such fluctuations can cause a security to be worth less than the price
originally paid for it or less than it was worth at an earlier time. Market
risk may affect a single issue, an entire industry, or the market as a whole.
Non-Diversification Risk. A portfolio is diversified when it spreads investment
risk by placing assets in several investment categories. A fund may invest in a
smaller number of individual issuers than a diversified investment company.
Accordingly, its risk may be higher if a particular investment category suffers
from adverse market conditions.
Non-Diversified Status. Each fund is classified as a "non-diversified"
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act of 1940"), as to the proportion of its assets that may
be invested in the securities of a single issuer. Because it may invest in a
smaller number of individual issuers than a diversified company, a fund may be
riskier than a diversified investment company. However, each fund intends to
abide by certain diversification requirements of the Internal Revenue Code in
order to qualify as a regulated investment company. See the section entitled
Tax Considerations in the Statement of Additional Information.
Prepayment Risk. Mortgage-backed, asset-backed, and certain other fixed income
securities bear the risk of faster or slower than expected prepayment of
principal, which affects the duration and return of the security and
reinvestment opportunities.
Tracking Risk. Tracking risk is the risk that a passively managed (index) fund
may not provide performance identical to that of its benchmark. Because it can
be expensive and difficult for an index fund to buy and hold all the securities
in its target benchmark, an index fund may hold a representative sample of the
index constituents. The performance of this sample may deviate from that of the
overall index. In addition, a mutual fund pays fees and transaction costs while
an index does not.
<PAGE>
Risk Return Analysis -- Performance Charts
These charts are intended to show the risk that a member's returns may vary from
year to year. Total return includes the effects of entry and exit fees received
by the funds; however, net asset value per share at the beginning and end of
each period used for calculating total return excludes such entry and exit fees.
The funds' past performance does not necessarily indicate how the funds will
perform in the future. Because the US Equity Index, Government Bond Index, and
Inflation-Linked Bond Funds have not yet commenced operations, no performance
information is available.
<TABLE>
<S> <C>
TIFF Multi-Asset Fund
During the 4-year period shown in the bar chart at right, the highest quarterly [BAR CHART]
return was 10.00% (quarter ended 12/31/1999) and the lowest quarterly return was TIFF Multi-Asset Fund Total Return
- -11.56% (quarter ended 9/30/1998). 1996 1997 1998 1999
14.72% 5.51% 0.22% 22.65%
TIFF International Equity Fund
During the 5-year period shown in the bar chart at right, the highest quarterly [BAR CHART]
return was 17.50% (quarter ended 12/31/1999) and the lowest quarterly return was TIFF International Equity Fund Total Return
- -18.82% (quarter ended 9/30/1998). 1995 1996 1997 1998 1999
9.85% 15.94% 0.91% 3.03% 37.40%
TIFF Emerging Markets Fund
During the 5-year period shown in the bar chart at right, the highest quarterly [BAR CHART]
return was 30.86% (quarter ended 12/31/1999) and the lowest quarterly return was TIFF Emerging Markets Fund Total Return
- -28.93% (quarter ended 9/30/1998). 1995 1996 1997 1998 1999
(8.39%) 2.51% (0.40%) (33.38%) 75.49%
TIFF US Equity Fund
During the 5-year period shown in the bar chart at right, the highest quarterly [BAR CHART]
return was 20.77% (quarter ended 12/31/1998) and the lowest quarterly return was TIFF US Equity Fund Total Return
- -17.68% (quarter ended 9/30/1998). 1995 1996 1997 1998 1999
36.02% 21.91% 33.01% 11.85% 18.89%
TIFF Bond Fund
During the 5-year period shown in the bar chart at right, the highest quarterly [BAR CHART]
return was 6.12% (quarter ended 6/30/1995) and the lowest quarterly return was - TIFF Bond Fund Total Return
1.73% (quarter ended 3/31/1996). 1995 1996 1997 1998 1999
18.07% 3.75% 9.35% 7.31% (0.45%)
TIFF Short-Term Fund
During the 5-year period shown in the bar chart at right, the highest quarterly [BAR CHART]
return was 1.78% (quarter ended 6/30/1995) and the lowest quarterly return was TIFF Short-Term Fund Total Return
1.09% (quarter ended 12/31/1998). 1995 1996 1997 1998 1999
6.43% 5.28% 5.30% 5.59% 4.93%
</TABLE>
<PAGE>
Risk Return Analysis --Performance Table
The table below illustrates the changes in the TIFF mutual funds' yearly
performance and shows how each fund's average returns for 1 year, 5 years, and
since fund inception compare with selected benchmarks. Note that past
performance is not necessarily an indication of how the funds will perform in
the future. Because the US Equity Index, Government Bond Index, and Inflation-
Linked Bond Funds have not yet commenced operations, no performance information
is available.
<TABLE>
<CAPTION>
Average Annual Total Return
through 12/31/1999
1 5 Since Fund
Year Years Inception Inception
<S> <C> <C> <C> <C>
TIFF Multi-Asset Fund 22.65% NA 11.74% 3/31/1995
CPI + 5% per annum 7.94% 7.45%
Constructed MAF Benchmark* 17.33% 14.32%
MSCI All Country World Free Index** 26.82% 19.39%
TIFF International Equity Fund 37.40% 12.70% 11.51% 5/31/1994
MSCI All Country World Free
ex US Index 30.91% 12.02% 10.91%
TIFF Emerging Markets Fund 75.49% 1.80% 0.31% 5/31/1994
MSCI Emerging Markets Free Index 63.70% -0.13% -0.16%
TIFF US Equity Fund 18.89% 24.03% 21.99% 5/31/1994
Wilshire 5000 Stock Index 23.56% 27.05% 24.30%
TIFF Bond Fund -0.45% 7.46% 6.74% 5/31/1994
Lehman Aggregate Bond Index -0.83% 7.73% 7.04%
TIFF Short-Term Fund 4.93% 5.53% 5.50% 5/31/1994
Merrill Lynch 182-day Treasury bill Index 4.63% 5.52% 5.44%
</TABLE>
* The Constructed MAF Benchmark consists of the following indices in the
indicated weights:
<TABLE>
<CAPTION>
Weight in
Constructed
Asset Class Benchmark Benchmark
<S> <C> <C>
US Stocks 25% Wilshire 5000 Stock Index
Foreign Stocks 25% MSCI All Country World Free ex US Index
Absolute Return Strategies 20% 3-month Treasury bills plus 5% per annum
Resource-Related Stocks 5% Resource-related sectors of MSCI World Index
75% Energy Services
20% Metals and Mining
5% Paper and Forest Products
Inflation-Linked Bonds 5% 10-year US Treasury Inflation Protected Security
US Bonds 20% Lehman Aggregate Bond Index
</TABLE>
Note: The Constructed MAF Benchmark has changed twice since the TIFF Multi-
Asset Fund's inception in order to more accurately reflect the Fund's
composition. On January 1, 1998, the Foreign Stock segment was reduced from
30% to 25% of the benchmark and the Absolute Return segment was increased from
15% to 20%. On October 1, 1999, the Resource-Related segment was reduced from
10% to 5%, Foreign Bonds were eliminated, US Bonds increased from 15% to 20%,
and Inflation-Linked Bonds were added to the benchmark at a 5% weight.
<PAGE>
** Please note that this Index is 100% stocks whereas the TIFF Multi-Asset Fund
normally comprises only 55% stocks. The MSCI All Country World Free Index is
included here solely to comply with SEC regulations.
<PAGE>
Fees and Annual Operating Expenses
This table describes the fees and expenses that a member pays when buying or
holding shares of a fund.
<TABLE>
<CAPTION>
Total
Annual Annual
Sales Transaction Charges Operating Operating
Shareholder Fees Loads Paid to Funds [a] Expenses Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
(paid directly from the Entry Fees on Exit Fees on Exchange Management Other
shareholder's investment) Purchases Redemptions Fees Fees [b] Expenses [c]
<S> <C> <C> <C> <C> <C> <C> <C>
Multi-Asset None 0.75% 0.75% 0.75% 0.32% 0.25% 0.57%
- -----------------------------------------------------------------------------------------------------------------------------------
International Equity None 0.75% 0.75% 0.75% 0.68% 0.32% 1.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Emerging Markets None 1.00% 1.00% 1.00% 1.03% 0.70% 1.73%
- -----------------------------------------------------------------------------------------------------------------------------------
US Equity None 0.25% 0.25% 0.25% 0.50% 0.17% 0.67%
- -----------------------------------------------------------------------------------------------------------------------------------
US Equity Index None 0.25% 0.25% 0.25% 0.09% 0.24% 0.33%
on purchases on redemptions on transactions
$5 mm $5 mm $5 mm
- -----------------------------------------------------------------------------------------------------------------------------------
Bond None None None None 0.24% 0.24% 0.48%
- -----------------------------------------------------------------------------------------------------------------------------------
Govt Bond Index None None None None 0.11% 0.24% 0.35%
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation-Linked Bond None 0.15% 0.15% 0.15% 0.15% 0.21% 0.36%
on purchases on redemptions on transactions
$5 mm $5 mm $5 mm
- -----------------------------------------------------------------------------------------------------------------------------------
Short-Term None None None None 0.23% 0.22% 0.45%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[a] Entry and Exit Fees. While the funds are no load and do not charge sales
commissions, all funds except the Bond, Government Bond Index and Short-Term
Funds assess entry and exit fees as set forth in the above table, expressed as
a percentage of the purchase, redemption or exchange amount. The reasons for
these fees are described in detail in the section entitled Purchases and
Redemptions. FAI may waive these fees in certain circumstances.
[b] Management Fees. The Management Fees listed above include advisory fees
and fees of those Money Managers that manage separate accounts on behalf of a
fund. Many of the Money Managers are on performance-based fee schedules and
therefore these fees will vary over time depending on the performance of the
funds. These fees are deducted from fund assets and are expressed as a
percentage of average net assets. For further discussion of Money Manager fees,
please see the section of the Statement of Additional Information entitled
Performance-Based Fees for Money Managers.
[c] Other Expenses. This category includes administration fees, custody fees,
legal, audit, and other miscellaneous fund expenses. These expenses are
deducted from fund assets and are expressed as a percentage of average net
assets.
[d] Fee Waiver. Because FAI waived all of its management fee and the Money
Manager waived a portion of its fee, total annual operating expenses were 0.35%
for the fiscal year ended December 31, 1999.
Example. This example is intended to help members compare the cost of
investing in a TIFF fund with the cost of investing in other mutual funds. The
example assumes that one invests $10,000 in a fund for the time periods
indicated. The example also assumes that the investment has a 5% return each
year, that the fund's operating expenses remain the same, and that all
dividends and distributions are reinvested. Entry fees are reflected in both
scenarios and exit fees are reflected in the rows labeled "With redemption at
end of period." Actual costs may be higher or lower.
Expenses per $10,000 Investment
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------------------------------------------------------
With No With No With No With No
redemption redemption redemption redemption redemption redemption redemption redemption
at end of at end of at end of at end of at end of at end of at end of at end of
period period period period period period period period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Multi-Asset $211 $133 $341 $256 $ 483 $ 391 $ 898 $ 783
- -----------------------------------------------------------------------------------------------------------------------------------
International Equity $254 $176 $475 $391 $ 714 $ 623 $1,401 $1,290
- -----------------------------------------------------------------------------------------------------------------------------------
Emerging Markets $376 $274 $749 $639 $1,145 $1,029 $2,257 $2,121
- -----------------------------------------------------------------------------------------------------------------------------------
US Equity $119 $ 93 $267 $239 $ 428 $ 397 $ 896 $ 857
- -----------------------------------------------------------------------------------------------------------------------------------
US Equity Index $ 85 $ 59 $159 $131 $ 241 $ 210 $ 482 $ 442
- -----------------------------------------------------------------------------------------------------------------------------------
Bond $ 49 $ 49 $154 $154 $ 269 $ 269 $ 604 $ 604
- -----------------------------------------------------------------------------------------------------------------------------------
Govt Bond Index $ 36 $ 36 $113 $113 $ 197 $ 197 $ 443 $ 443
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation-Linked Bond $ 67 $ 52 $148 $131 $ 236 $ 217 $ 493 $ 470
- -----------------------------------------------------------------------------------------------------------------------------------
Short-Term $ 46 $ 46 $144 $144 $ 252 $ 252 $ 567 $ 567
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Eligible Investors
Asset Size. The TIFF mutual funds are available only to organizations meeting
the eligibility criteria set forth below. Because of the nature of certain
investments made by the Multi-Asset, International Equity, and Emerging Markets
Funds, shares of these funds are available only to organizations that invest at
least $750,000 in TIP or whose endowment assets exceed $1.5 million.
Organizations wishing to confirm their eligibility should contact FAI.
Eligibility Criteria. The TIFF mutual funds are open to:
. Organizations operated exclusively for charitable purposes, no part of the
net earnings of which inures to the benefit of any private individual or
corporation;
. Organizations that qualify for exemption from federal income taxes under
Section 501(c)(3) of the Internal Revenue Code of 1986, as amended;
. Non-US-based charitable organizations that have received 501(c)(3)
equivalency certificates from the Internal Revenue Service;
. Planned giving or split interest assets of eligible organizations where at
least part of the income or principal of such assets is owned irrevocably
by the eligible organization and the organization has legal control over
the securities or vehicles in which such assets are invested;
. Retirement plans maintained for the employees of organizations meeting the
above eligibility criteria; and
. FAI employees.
Management and Administration of the Funds
TIFF The Investment Fund for Foundations, a not-for-profit membership
organization dedicated to enhancing foundations' investment returns
TIP TIFF Investment Program, a family of no-load mutual funds offered
exclusively to 501(c)(3) organizations
FAI Foundation Advisers, Inc., the investment advisor of the TIFF mutual funds,
taxable but operated on a not-for-profit basis
The Cooperative. The TIFF Investment Program, Inc. ("TIP") seeks to improve the
net investment returns of its members by making available to them a series of
investment funds. Each fund has its own investment objective and policies. The
funds are advised by Foundation Advisers, Inc. ("FAI"). TIP and FAI were
organized by The Investment Fund for Foundations ("TIFF"). TIFF is a tax-
exempt, not-for-profit, member-controlled organization dedicated to enhancing
foundations' investment returns. Although certain members of TIFF's board of
trustees serve as directors of TIP and FAI, TIFF does not exercise control over
TIP. The directors of TIP are elected by the members of the funds. FAI is a
director-controlled corporation, and a majority of its directors are not
affiliated persons or interested persons of TIFF as those terms are defined in
the Investment Company Act of 1940.
Directors and Officers of TIP and FAI. TIP's board of directors manages and
supervises TIP. With the exception of FAI's president, all FAI and TIP
directors serve as unpaid volunteers. Individuals currently serving as
directors or officers of TIP and FAI are identified below.
<PAGE>
Management and Administration of the Funds continued
Selection Process. Initial members of the boards of FAI and TIP were selected
by TIFF's board of trustees. TIP's directors are elected by the funds' members
(see Member Voting Rights and Procedures in the Statement of Additional
Information). FAI's directors are elected according to procedures designed to
ensure that FAI's directors, officers, and employees remain responsive to
members' needs.
<TABLE>
<CAPTION>
TIP FAI
----------------------------------------------------------------
Directors Officers Directors Officers
<S> <C> <C> <C> <C>
Unpaid Directors
Sheryl L. Johns Chair
William F. Nichols* Director Director
Fred B. Renwick Director
John E. Craig, Jr. Director
Gregory D. Curtis Chair
Alice W. Handy Director
Robert A. Kasdin Director
William McLean Director
Jack R. Meyer Director
Ann B. Sloane Director
David F. Swensen Director
Jeffrey Tarrant Director
Arthur Williams III Director
Officers and Paid Directors
David A. Salem* Director President Director President
Esther L. Cash Vice Pres/Sec Managing Director
Thomas N. Felker Vice President Managing Director
Nina F. Scherago Vice President Managing Director
Meredith A. Shuwall Vice President Managing Director
William E. Vastardis Treasurer
- ----------------------------------------------------------------------------------------------------------
</TABLE>
An asterisk (*) has been placed next to the names of the two members of TIP's
board of directors who are "interested persons" by virtue of their
affiliations with FAI as defined by the Investment Company Act of 1940.
Biographies of Unpaid Directors
John E. Craig, Jr. is executive vice president and treasurer of The Commonwealth
Fund, One East 75th Street, New York, NY, 10021, where he oversees assets
exceeding $500 million. Mr. Craig was formerly assistant director of the John
A. Hartford Foundation. He chairs the board of the Non-Profit Coordinating
Committee of New York, is a member of the Investment Committee of the Social
Science Research Council, and is a member of the board of the Greenwall
Foundation and the Picker Institute. He is chair of the board of The Investment
Fund for Foundations.
Gregory D. Curtis is president of Greycourt & Co., Inc., 607 College Street,
Pittsburgh, PA, 15232, an investment consulting firm. Mr. Curtis was formerly
president of the Laurel Foundation and C.S. May Associates, a private family
office. He is a trustee of the Center for the Study of Community, the
Contemporary Arts Stabilization Trust, and St. John's College.
Alice W. Handy is president of the University of Virginia Investment Management
Company, P.O. Box 400215, Charlottesville, VA, 22904, which has endowment and
trust assets exceeding $1.7 billion. Ms. Handy was formerly treasurer of the
Commonwealth of Virginia. She chairs the Investment Advisory Committee of the
Virginia Retirement System and is a member of the advisory board of First Union
Bank of Virginia.
<PAGE>
Management and Administration of the Funds continued
Sheryl L. Johns is vice president, treasurer, and chief financial officer of
Houston Endowment Inc., 600 Travis, Suite 6400, Houston, TX, 77002, a private
foundation with assets exceeding $1 billion. She was formerly a manager with
the accounting firm of Ernst & Young. Ms. Johns is a Certified Management
Accountant as well as a Certified Public Accountant. She is a member of the
board of directors of the Conference of Southwest Foundations, a member of the
steering committee of the Foundation Financial Officers Group, a trustee of The
Investment Fund for Foundations, and chair of the TIFF Investment Program, Inc.
Robert A. Kasdin is executive vice president and chief financial officer of the
University of Michigan, 3014 Fleming Administration Building, 503 Thompson
Street, Ann Arbor, MI, 48109, where he, among other responsibilities, oversees
an endowment of $3 billion. Mr. Kasdin was formerly treasurer and chief
investment officer of The Metropolitan Museum of Art and vice president and
general counsel of the Princeton University Investment Company. He is a former
member of the Finance Committee of the Rockefeller Brothers Fund and a current
member of the board of directors of the Institute for Ecosystem Studies.
William H. McLean is senior managing director of asset and investment management
of the John D. and Catherine T. MacArthur Foundation, Suite 1100, 140 South
Dearborn Street, Chicago, IL, 60603, a private foundation with assets exceeding
$4 billion. He was formerly an investment officer at The Duke Endowment.
Jack R. Meyer is president and chief executive officer of Harvard Management
Company, 600 Atlantic Avenue, 15th Floor, Boston, MA, 02110, the endowment
management subsidiary of Harvard University, which has endowment, pension, and
trust assets exceeding $16 billion. Mr. Meyer was formerly treasurer and chief
investment officer of the Rockefeller Foundation, deputy comptroller of New York
City, and a director of the Investor Responsibility Research Center.
William F. Nichols is treasurer of the William and Flora Hewlett Foundation, 525
Middlefield Road #200, Menlo Park, CA, 94025, which has assets of $2.9 billion.
He is also a director of the Lucile Packard Foundation for Children's Health and
a trustee of Channing House.
Fred B. Renwick is professor of finance at the Leonard M. Stern School of
Business, New York University, 44 West 4th Street, Suite 9-190, New York, NY,
10012. Professor Renwick is chair of the Finance Committee of Morehouse College
and chair of the Investment Committees of the American Bible Society and
Wartburg Foundation. He was formerly vice chair of the Board of Pensions of the
Evangelical Lutheran Church in America.
Ann Brownell Sloane is president of Sloane & Hinshaw, 67A East 77th Street, New
York, NY, 10021, a firm that furnishes strategic, financial planning, and
management services to foundations and other tax-exempt grantmaking
organizations. Ms. Sloane is a former trustee of Swarthmore College and
recently completed 20 years of service on the Investment Committee of its board
of managers.
David F. Swensen is chief investment officer of Yale University, 230 Prospect
Street, New Haven, CT, 06511, which has assets exceeding $6 billion. Mr.
Swensen was formerly an associate at Salomon Brothers and a senior vice
president at Lehman Brothers. He is a lecturer in Yale College, management
fellow at Yale's School of Management, and a trustee of The Carnegie Institution
of Washington. He is a member of the Investment Advisory Committees of the
Carnegie Corporation, Edna McConnell Clark Foundation, and Howard Hughes Medical
Institute.
<PAGE>
Management and Administration of the Funds continued
Jeffrey Tarrant is president of Arista Group, Inc., One Rockefeller Plaza, Suite
1010 New York, NY, 10020, an investment advisory firm advising the Sidney Kimmel
Foundation and the Kimmel family private portfolio. He is also the founder of
Altvest, an Internet Website for alternative investments. He was formerly
president of Thurn und Taxis of America, Inc. and manager of the Thurn und Taxis
family capital portfolio (Regensburg, Germany).
Arthur Williams III is president of Pine Grove Associates, Inc., 350 Springfield
Avenue, Summit, NJ, 07901, an asset management and consulting firm providing
services to high net worth institutions and families. He is former director of
retirement plan investments and other investment programs for McKinsey &
Company, Inc. He is the author of Managing Your Investment Manager and a member
of the Nominating Committee of the Institute for Quantitative Research in
Finance. He also serves as trustee for a number of families.
Biographies of Officers
Esther L. Cash is managing director of The Investment Fund for Foundations and
Foundation Advisers, Inc., 2405 Ivy Road, Charlottesville, VA, 22903. Prior to
joining TIFF, Ms. Cash was employed by Grantham, Mayo, Van Otterloo & Co.
("GMO"), where her responsibilities included operations, investment research,
asset allocation, regulatory compliance, and communications for GMO's
institutional mutual funds. Prior to joining GMO, she was employed by Cambridge
Associates, Inc., where she was involved in systems design, research, and
consulting.
Thomas N. Felker is managing director of The Investment Fund for Foundations and
Foundation Advisers, Inc., 2405 Ivy Road, Charlottesville, VA, 22903. Prior to
joining TIFF, Mr. Felker was head of pension investments for Fort James
Corporation, where his responsibilities included formulating investment policy
and evaluating money managers. Prior to joining Fort James, Mr. Felker was a
tax manager and auditor at Ernst & Young. He is a Certified Public Accountant
and a CFA charterholder.
David A. Salem is president and chief executive officer of The Investment Fund
for Foundations and Foundation Advisers, Inc., 2405 Ivy Road, Charlottesville,
VA, 22903. Prior to assuming TIFF's presidency in 1993, Mr. Salem was a partner
in the Boston-based investment advisory firm Grantham, Mayo, Van Otterloo & Co.,
where his responsibilities included asset allocation and strategic planning.
Prior to joining GMO, Mr. Salem was a managing director of Cambridge Associates,
Inc., which provides investment and financial planning services primarily to
not-for-profit endowed institutions. He has served on the faculties of
Middlebury College and the University of Virginia and in the Office of the
Counsel to the President of the United States. Mr. Salem is a trustee of the
Core Knowledge Foundation and is former co-chair of the Cabinet of the Thomas
Jefferson Memorial Foundation (Monticello).
Nina F. Scherago is managing director of The Investment Fund for Foundations and
Foundation Advisers, Inc., 2405 Ivy Road, Charlottesville, VA, 22903. Prior to
joining TIFF, Ms. Scherago was director of private investments of the Howard
Hughes Medical Institute, where she oversaw a private investment portfolio of
approximately $1.2 billion. Prior to joining Howard Hughes, Ms. Scherago was
with the investment banking firm of Alex. Brown & Sons. She is a CFA
charterholder.
Meredith A. Shuwall is managing director of The Investment Fund for Foundations
and Foundation Advisers, Inc., 2405 Ivy Road, Charlottesville, VA, 22903. Prior
to joining TIFF, Ms. Shuwall was a vice president at Vrolyk & Company, where her
responsibilities included providing financial advisory and merger and
acquisition services for private companies. Prior to joining Vrolyk, Ms.
Shuwall was an associate at Onyx Partners, Inc., where she managed an
opportunistic real estate fund.
<PAGE>
Management and Administration of the Funds continued
William E. Vastardis is managing director of fund administration of Investors
Capital Services, Inc. ("Investors Capital"), 600 Fifth Avenue, 26th Floor, New
York, NY, 10020. Prior to joining Investors Capital, Mr. Vastardis served as
vice president and head of the private label mutual fund administration division
of the Vanguard Group, Inc. (1984-92) and in Vanguard's fund accounting
operations (1978-84). The Vanguard Group, headquartered in Malvern, PA, is the
second largest mutual fund family in the US.
Remuneration of Directors and Officers; Reimbursement of Expenses. The
following individuals receive remuneration for their services as directors or
officers of TIP or FAI: Ms. Cash, Mr. Felker, Mr. Salem, Ms. Scherago, Ms.
Shuwall, and Mr. Vastardis. Ms. Cash, Mr. Felker, Mr. Salem, Ms. Scherago, and
Ms. Shuwall are paid employees of FAI and receive no compensation directly from
TIP. Mr. Vastardis is a paid employee of Investors Capital and receives no
compensation directly from FAI or TIP. FAI and TIP directors may be reimbursed
for their out-of-pocket expenses associated with attending board meetings.
The Advisor. FAI, with principal offices at 2405 Ivy Road, Charlottesville, VA,
22903, is a non-exempt membership corporation that serves as the advisor to all
funds. FAI was formed to facilitate investment by private foundations,
community foundations, and other 501(c)(3) organizations in stocks, securities,
and other assets. FAI's affairs are managed by its board of directors. FAI's
directors are members of the corporation and are "controlling persons" (as
defined in the Investment Company Act of 1940) of FAI. This fact does not
prevent payment of reasonable compensation for services rendered in carrying out
FAI's activities.
Advisory Agreement. Pursuant to each fund's Advisory Agreement with TIP, FAI:
1. develops investment programs, selects Money Managers, and monitors their
investment activities and results;
2. provides or oversees the provision of all general management, investment
advisory, and portfolio management services to TIP;
3. provides TIP with office space, equipment, and personnel;
4. passively manages the Inflation-Linked Bond Fund;
5. allocates and reallocates each fund's assets among the Money Managers;
6. identifies appropriate commingled investment vehicles in which to invest the
funds' assets; and
7. invests funds held in the form of cash reserves pending allocation to Money
Managers or to meet redemption requests.
Money Managers
Multi-Manager Structure. With the exception of the passively managed vehicles
(the US Equity Index, Government Bond Index and Inflation-Linked Bond Funds) and
the Short-Term Fund, each fund employs multiple Money Managers. FAI seeks to
facilitate the attainment of each fund's investment and performance objectives
by allocating a portion of a fund's assets to a number of Money Managers. Each
Money Manager specializes in a particular market sector and utilizes a
particular investment style.
Discretion Afforded Money Managers. Each Money Manager has discretion to
purchase and sell securities for its allocated portion of a fund's assets,
subject to written investment objectives, policies, and restrictions. For
separate accounts, these guidelines are developed by TIP's board of directors
and FAI; for Money Managers that manage a fund's assets as commingled investment
vehicles, the guidelines are typically developed by the vehicles' management and
reviewed by TIP and FAI. Although the Money Managers' activities are subject to
general oversight by the boards of directors and officers of TIP and FAI,
neither the boards nor the officers of FAI evaluate the investment merits of the
Money Managers' individual security selections.
<PAGE>
Management and Administration of the Funds continued
Manager Selection Process. With the exception of funds managed by FAI or held,
in the form of cash reserves pending allocation to Money Managers or
distribution to members, the assets of each fund are allocated by FAI among the
Money Managers profiled in Appendix A. The Money Managers' investment
approaches are described in Appendix A. FAI is responsible for identifying
qualified Money Managers and (in the case of separate account Money Managers)
negotiating the Agreement terms under which they will provide services to the
funds. These Agreements are submitted for approval by TIP's board of directors.
TIP's board of directors retains the right to disapprove the hiring of Money
Managers and to terminate Agreements (subject to termination provisions
contained therein) between TIP and all service providers employed by it,
including FAI and the Money Managers.
Manager Selection Criteria. In selecting Money Managers, FAI weighs a number of
relevant factors and makes its selection based on a comparison of all such
factors. FAI reviews the historical investment results of a universe of Money
Managers, evaluates written information about these money managers supplied by
the Money Managers and outside parties, and conducts face-to-face interviews
with the individuals who would actually manage money for TIP should their firms
be employed by it. Each of the Disqualifying Attributes noted below constitutes
a sufficient ground for rejection or dismissal of a Money Manager displaying it.
The factors considered by FAI in selecting the funds' current Money Managers and
in considering the selection of other Money Managers include:
Important Attributes
. A well-defined investment philosophy that gives the manager a
discernible competitive advantage in the gathering or processing of
investment data
. A verifiable record that the firm has faithfully executed this
philosophy over time
. A proven capacity to deliver reasonably uniform results to all clients'
assets to which this philosophy is applied
. A reasonable amount of assets under management to which this philosophy
is applied
. Satisfactory returns versus relevant benchmark indices
. A proven capacity to adapt to changes in financial markets
. A proven willingness to invest adequately in its own business (including
technological resources) in light of such changes
. Investment professionals who have strong personal incentives (both
financial and psychological) to produce satisfactory results for their
clients
Helpful Attributes
. Money management is the firm's sole (preferably) or primary line of
business
. The firm's decisionmakers are seasoned professionals or the firm's
philosophy is unusually innovative (preferably both)
. The firm is willing to use performance-based fee arrangements as an
expression of confidence in its own abilities
. The firm complies fully with the Performance Presentation Standards of
the Association for Investment Management and Research
Undesirable Attributes
. A high degree of personnel turnover
. Insufficiently trained administrative personnel
. Insufficiently robust investment accounting systems
. Investment decisionmakers who are unduly burdened with administrative
tasks
. An unwillingness to specify asset size limits for products or services
that require such limits
<PAGE>
Management and Administration of the Funds continued
Disqualifying Attributes
. Investment decisionmakers who are engaged primarily in brokerage or
financial planning (as distinct from portfolio management)
. An inability to meet performance reporting deadlines
. Relevant criminal convictions or sanctions by the SEC or other federal
or state regulatory agencies
Other Considerations. When evaluating persons who might potentially manage
money for TIP, FAI's directors consider carefully the financial viability and
stability of the firms with which they are associated, but they do not assume
that the age (or size) of an investment management organization and the quality
of its services are always positively correlated. Indeed, if properly
structured and managed, a newly established investment management organization
has the potential to deliver superior services to its clients or members at a
lower cost than competing suppliers precisely because its human and
technological resources have been assembled recently: technology is evolving so
rapidly that organizations structured and equipped specifically to compete under
current, as distinct from past, market conditions often have a discernible edge;
provided, of course, that the persons leading them are sufficiently skilled and
experienced.
Money Manager Agreements. In order to preserve the flexibility needed to
respond to changes in TIP's operating environment, the Agreements between TIP
and each Money Manager do not specify the percentage of a fund's assets to be
allocated to the Money Manager. Members and prospective members seeking to know
the actual allocation of each fund's assets across Money Managers at a given
time can obtain this information by contacting FAI.
<TABLE>
<CAPTION>
Multi- International Emerging US Short-
Asset Equity Markets Equity Bond Term
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Management Fees Paid to FAI and Money
Managers for Fiscal Year Ended 12/31/99 0.32% 0.68% 1.03% 0.50% 0.24% 0.23%*
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*As a result of waivers of all of FAI's advisory fee and a portion of the Money
Manager's management fee, the actual management fee paid by the Short-Term Fund
for the fiscal year ended December 31, 1999 was 0.13%.
Because the US Equity Index, Government Bond Index and Inflation-Linked Bond
Funds have not yet commenced operations, no management fees have been paid. The
management fees paid by these funds will be a monthly fee calculated by applying
the following annual percentage rates to such fund's average daily net assets
for the month:
<TABLE>
<CAPTION>
US Equity Government Inflation-Linked
Assets Index Bond Index* Bond
<S> <C> <C> <C>
On first $50 million 0.10% 0.12% 0.15%
On next $50 million 0.08% 0.10% 0.15%
On remainder (>$100 million) 0.06% 0.08% 0.15%
- ------------------------------------------------------------------------------
</TABLE>
*[The mangement fees shown above for the Government Bond Index Fund are for the
first year of the Fund's operation only and are subject to a monthly minimun fee
that is the greater of [$6,250] plus 0.03% of average daily net assets or the
amount calculated by applying the annual percentage rates in the table. For year
two of the Fund, the monthly minimun fee will be the greater of [$6,250] plus
0.03% of average daily net assets or the amount calculated by applying the
following annual percentage rates to the Fund's average daily net assets: 0.11%
on the first $50 million, 0.09% on the next $50 million and 0.07% on the
remainder (over $100 million). In year three of the Fund and for each year
thereafter, the monthly minimum fee will be the greater of [$8,333] plus 0.03%
of the Fund's average daily net assets or the amount calculated by applying the
following annual percentage rates to the Fund's average daily net assets: 0.09%
on the first $50 million, 0.07% on the next $50 million, and 0.06% on the
remainder (over $100 million).]
<PAGE>
Investment Objectives, Policies, and Restrictions
Overview. The investment objective for each fund except the U.S. Equity Index,
Government Bond Index and Inflation-Linked Bond Funds and certain investment
policies and restrictions of all funds are fundamental, which means that they
may be changed only with the approval of the fund's members holding a majority
of that fund's outstanding voting securities. Other investment policies and
restrictions may be changed by the funds' board of directors without member
approval. There can be no assurance a fund will attain its Investment
Objective.
Performance Goals. Performance benchmarks and certain other fund policies are
not fundamental and may be changed without member approval upon notice to
members. A fund's performance benchmark serves to monitor its success over a
full market cycle (for these purposes, a market cycle is defined as the period
from the peak of one rising market to the peak of the next rising market, or the
corresponding troughs of falling markets). The performance of each fund, when
compared to its specified benchmark, can be expected to vary from year to year.
The funds attempt to attain their performance goals over a combination of rising
and falling markets, not during a single rising or falling market or a defined
time period (such as one year).
Temporary Defensive Strategies. The funds may temporarily depart from their
normal investment policies - for example, by investing substantially in cash
reserves - in response to extraordinary market, economic, political, or other
conditions. In doing so, a fund may succeed in avoiding losses but otherwise
fail to achieve its investment objective.
Purchases and Redemptions
Account Application. An Account Application must be completed and submitted by
each TIP investor. Accompanying the completed application, members must also
submit a copy of proof of their tax exempt status from the IRS. Organizations
admitted as members of TIP that are subsequently determined to be ineligible
will be asked to redeem all shares that they hold in all TIFF mutual funds.
Net Asset Value. The price at which a member purchases or redeems shares of a
fund is equal to the net asset value (the "NAV") per share of the fund as
determined on the effective date of the purchase or redemption. The NAV is
calculated by taking the total value of a fund's assets, subtracting the fund's
liabilities, and dividing the result by the number of fund shares outstanding.
This calculation is performed by the fund Accounting Agent, Investors Bank &
Trust Company, as of the end of regular trading hours of the New York Stock
Exchange (currently 4:00 p.m. Eastern time) on the days that the New York Stock
Exchange, the Federal Reserve Bank of New York, the Distributor, the
Administrator, the Transfer Agent, and the Custodian are all open for business,
which is typically Monday through Friday, except holidays ("Business Days").
Fees. Purchases and redemptions of shares in the funds include no sales
charges. However, all funds except the Bond, Government Bond Index and Short-
Term Funds assess entry and exit fees as set forth in the section entitled Fees
and Annual Operating Expenses. These fees are paid directly to the funds
themselves and not to FAI or other fund Service Providers. They apply to
initial investments in each fund and all subsequent purchases, exchanges, or
redemptions but not to reinvested dividends or capital gains distributions.
These entry and exit fees are designed to allocate transaction costs associated
with purchases, exchanges, and redemptions of fund shares to members actually
making such transactions, rather than to the funds' other members. These fees
are deducted automatically from the amount invested or redeemed and cannot be
paid separately. Entry and exit fees may be waived at FAI's discretion when the
transaction will not result in significant costs for the affected fund (e.g.,
in-kind purchases and redemptions).
<PAGE>
Purchases and Redemptions continued
Offering Dates, Times, and Prices. The fund continuously offers fund shares,
and purchases may be made on any Business Day. Fund shares may be purchased at
each fund's net asset value, next determined after an order and payment are
accepted and any applicable entry fee has been deducted. Each fund's net asset
value is determined on the basis of market prices or fair value as determined by
the fund's board of directors. All purchases, except in-kind purchases, must be
made in US dollars. The funds reserve the right to reject any purchase order.
Share purchase orders are deemed accepted when Investors Capital Services
receives a completed Account Application and other required documents and funds
become available to TIP in TIP's account with the Custodian as set forth below.
Investment Minimums. The minimum initial investment in each fund is $100,000
with the exception of the Short-Term Fund, which has a minimum initial
investment of $50,000. The individual fund minimum may be waived if a member
invests at least $750,000 in any combination of funds. Minimums may be waived
for FAI employees. Subsequent purchases and redemptions may be made in any
amount.
Order and Payment Procedures. To purchase shares on a particular Business Day,
the following procedures apply:
When Allowed Purchases may be made on any Business Day.
Payment Procedure Federal funds should be wired to the funds' Custodian and
Transfer Agent, Investors Bank & Trust Company, Boston,
Massachusetts. (See Wiring Instructions below.)
Procedure A purchaser must call TIP at 804-817-8200 to inform TIP of
the incoming wire transfer and must clearly indicate which
fund is to be purchased. If federal funds are received by
TIP prior to 4 p.m. Eastern time, the order will be
effective on that day.
Notification If TIP receives notification after 4:00 p.m. Eastern time or
if federal funds are not received by the Transfer Agent by
4:00 p.m. Eastern time, such purchase order shall be
executed as of the date that federal funds are received by
4:00 p.m. Eastern time.
Converted Funds Funds transferred by bank wire may or may not be converted
into federal funds the same day, depending on the time the
funds are received and on the bank wiring the funds. If
funds are not converted the same day, they will be converted
the next Business Day.
Redemption Procedures. To redeem shares on a particular Business Day, the
following procedures apply:
Type of Redemption Full and fractional shares in any amount may be redeemed
upon member's request.
Who May Redeem Only an authorized agent as designated on the member's
Account Application may request a redemption.
Notification The member must inform FAI of the dollar or share amount to
be redeemed, the account to which the proceeds should be
wired (as designated on the Account Application), and the
member's name and account number.
Time of Notice TIP must receive notice of redemption by 4:00 p.m. Eastern
time on any Business Day.
Late Notice If the notice is received on a day that is not a Business
Day or after 4:00 p.m. Eastern time, it will be deemed
received as of the next Business Day.
<PAGE>
Purchases and Redemptions continued
Redemption Price The redemption will be based on the NAV per share next
determined after receipt by the Transfer Agent of proper
notice.
Payment Payment generally will be made on the day following receipt
of notice, less any applicable exit fee, but TIP reserves
the right to delay payment for up to seven days.
Telephone Redemption Option. A member may request a redemption by calling FAI.
TIP, FAI, Investors Capital, or the Transfer Agent may employ procedures
designed to confirm that instructions communicated by telephone are genuine.
TIP will take reasonable steps to ensure that telephone instructions are
legitimate and will not be liable for losses due to unauthorized or fraudulent
instructions. TIP, FAI, Investors Capital, or the Transfer Agent may require
personal identification codes and will only wire funds through pre-existing bank
account instructions. TIP will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine. No bank
instruction changes will be accepted via telephone and all changes to a member's
wiring instructions will require a signature guarantee by a qualified financial
institution.
Potential In-Kind Redemptions. The funds reserve the right to redeem in-kind,
in readily marketable securities, any redemption request by a member if the
aggregate market value of the shares being redeemed by that member during any
90-day period exceeds the lesser of $250,000 or 1% of the fund's net asset value
during such period. Redemptions in-kind entail the distribution to a redeeming
member of readily marketable securities held by the fund whose shares it seeks
to redeem, selected by FAI in its discretion, as opposed to the cash
distributions normally made to redeeming members.
Exchange Privilege. One fund's shares may be exchanged for shares of any other
of the funds based on the respective net asset values of the shares involved in
the exchange. There is no minimum for such an exchange. An exchange order is
treated as a redemption followed by a purchase for tax purposes and for purposes
of determining whether an entry or exit fee should be assessed. Investors
wishing to make exchange requests should contact FAI. The exchange privilege is
available only in states where the exchange legally may be made.
Wire Transfer Instructions. A member's bank may impose its own processing fee
for outgoing wires (in connection with purchases of fund shares) or incoming
wires (in connection with redemptions of fund shares). A member may change its
authorized agent or the account designated to receive redemption proceeds at any
time by writing to FAI with an appropriate signature guarantee. Further
documentation may be required when deemed appropriate by FAI, Investors Capital,
or the Transfer Agent.
Funds should be wired to:
Investors Bank & Trust Company
Boston, Massachusetts
ABA#: 011001438
Attention: Transfer Agent
Deposit Account: 433334444
Further Credit: TIFF Investment Program
Member Name: Name of Member Organization
Dividends and Distributions
Intended Distribution Schedule. Each fund intends to distribute to its members
substantially all of its net investment income and its net realized long- and
short-term capital gains. Net investment income includes dividends, interest,
and other ordinary income, net of expenses. The intended payment schedules are
summarized in the following table:
<PAGE>
Dividends and Distributions continued
<TABLE>
<CAPTION>
Dividends Capital Gains
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Declared Reinvested Paid Declared Reinvested Paid
- ----------------------------------------------------------------------------------------------------------------------------
Multi-Asset Semi-Annually July/ July/ Annually December December
December December
- ----------------------------------------------------------------------------------------------------------------------------
International Equity Semi-Annually July/ July/ Annually December December
December December
- ----------------------------------------------------------------------------------------------------------------------------
Emerging Markets Annually December December Annually December December
- ----------------------------------------------------------------------------------------------------------------------------
US Equity Quarterly April/July/ April/July/ Annually December December
October/ October/
December December
- ----------------------------------------------------------------------------------------------------------------------------
US Equity Index Annually December December Annually December December
- ----------------------------------------------------------------------------------------------------------------------------
Bond Daily Last Business First Business Annually December December
Day of Month Day of Month
- ----------------------------------------------------------------------------------------------------------------------------
Government Bond Index Monthly Last Business First Business Annually December December
Day of Month Day of Month
- ----------------------------------------------------------------------------------------------------------------------------
Inflation-Linked Bond Semi-Annually July/ July/ Annually December December
December December
- ----------------------------------------------------------------------------------------------------------------------------
Short-Term Daily Last Business First Business Annually December December
Day of Month Day of Month
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
In order to satisfy certain distribution requirements, a fund may declare
special year-end dividends and capital gains distributions, typically during
October, November, or December, to members of record in such month. Such
distributions, if paid to members by January 31 of the following calendar year,
are deemed to have been paid by a fund and received by members on December 31 of
the year in which they were declared. TIP will seek to provide to members as
much notice as possible regarding the timing of all distributions.
Distribution Options
Option 1 - Automatic Reinvestment of Distributions. Dividends and capital gains
are automatically reinvested in additional shares of the same fund at the net
asset value per share according to the schedule listed above.
Option 2 - Receive Cash. Dividends and capital gains are paid in cash according
to the schedule listed above.
Option 3 - Receive Dividends in Cash and Reinvest Capital Gains. Dividends are
paid in cash and capital gains are automatically reinvested in additional shares
of the same fund at the net asset value per share according to the schedule
listed above.
Additional Redemption Options. Members wishing to adopt a fixed dollar amount or
percentage distribution should contact FAI to arrange for such specific
distributions. Members can change their distribution options by contacting FAI
in writing by the record date of the applicable dividend.
Tax-Related Warning to Private Foundations. If a private foundation subject to
excise taxation purchases shares shortly before a distribution of dividends and
capital gains, a portion of its investment will be classified as a taxable
distribution (regardless of whether it reinvests distributions or takes them in
cash).
Tax Considerations
The following discussion is for general information only. Members and
prospective members should consult with their own tax advisors as to the tax
consequences of an investment in a fund, including the status of distributions
from each fund under applicable state or local laws.
<PAGE>
Tax Considerations continued
Federal Taxes. The fund generally will not pay US federal income or excise tax.
Each fund intends to distribute all of its taxable income by automatically
reinvesting such amount in additional shares of the fund and distributing those
shares to its members, unless a member elects on the Account Application to
receive cash payments for such distributions.
Tax Treatment of Distributions. The funds intend to make distributions that may
be taxed as ordinary income and capital gains. Dividends paid by a fund from
its investment company taxable income (including interest and net short-term
capital gains) will be taxable to a US member as ordinary income. If a portion
of a fund's income consists of dividends paid by US corporations, a portion of
the dividends paid by the fund may be eligible for the corporate dividends-
received deduction (assuming that the deduction is otherwise allowable in
computing a member's federal income tax liability). Any distributions of net
capital gains (the excess of net long-term capital gains over net short-term
capital losses) designated as capital gain dividends are taxable to members as
long-term capital gains, regardless of how long they have held their fund
shares. Dividends are taxable to members in the same manner whether received in
cash or reinvested in additional fund shares. An exchange of one fund's shares
for shares of another fund will be treated as a sale of the first fund's shares
and purchase of the second fund's shares. Any gain on the transaction may be
subject to federal income tax.
A distribution will be treated as paid on December 31 of a calendar year if it
is declared by a fund in October, November, or December with a record date in
any such month and paid by the fund during January of the following calendar
year. Such distributions will be taxable to members in the calendar year in
which the distributions are declared rather than the calendar year in which they
are received. The US Equity Fund expects that its distributions will represent
primarily capital gains, and the Bond, Government Bond Index and Short-Term
Funds expect that their distributions will represent primarily ordinary income.
Each fund will inform members of the amount and tax status of all amounts
treated as distributed to them within 60 days after the close of each calendar
year.
Tax Treatment of Capital Transactions. Any gain or loss realized by a member
upon the sale or other disposition of shares of a fund, or upon receipt of a
distribution in a complete liquidation of the fund, generally will be a capital
gain or loss. Such capital gain or loss will be either long term or short term,
depending upon the member's holding period for the shares.
Backup Withholding. As with all mutual funds, a fund may be required to
withhold US federal income tax at the rate of 31% of all taxable distributions
payable to members who fail to provide the fund with correct taxpayer
identification numbers or to make required certifications or who have been
notified by the IRS that they are subject to backup withholding. Backup
withholding is not an additional tax; rather, it is a way in which the IRS
ensures it will collect taxes otherwise due. Any amount withheld may be
credited against US federal income tax liability.
State and Local Taxes. A fund may be subject to state, local, or foreign
taxation in any jurisdiction in which it may be deemed to be doing business.
Fund distributions may be subject to state and local taxes. Distributions of a
fund which are derived from interest on obligations of the US Government and
certain of its agencies, authorities, and instrumentalities may be exempt from
state and local taxes in certain states.
Further information relating to tax consequences is contained in the Statement
of Additional Information.
<PAGE>
Financial Highlights
The financial highlights tables are intended to help members understand the
funds' financial performance for the period of each fund's operations. Certain
information reflects financial results for a single share of a fund. The total
returns in the tables represent the rate that an investor would have earned (or
lost) on an investment in a given fund, assuming reinvestment of all dividends
and distributions. This information has been audited by PricewaterhouseCoopers
LLP, whose report is included along with the funds' financial statements in the
Annual Report (available upon request). Because the US Equity Index, Government
Bond Index, and Inflation-Linked Bond Funds have not yet commenced operations,
no financial highlights are available.
TIFF Multi-Asset Fund
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Period from
For a share outstanding throughout each period 12/31/99 12/31/98 12/31/97 12/31/96 3/31/95*-12/31/95
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $ 11.42 $ 11.65 $ 12.08 $ 11.13 $ 10.00
Income from investment operations:
Net investment income 0.22 0.20 0.44 0.17 0.26
Net realized and unrealized gain (loss) on
investments** 2.30 (0.20) 0.01 1.37 1.08
--------- --------- --------- --------- ---------
Total from investment operations 2.52 0.00 0.45 1.54 1.34
Less distributions from:
Net investment income (0.41) (0.07) (0.30) (0.18) (0.24)
Amounts in excess of net investment income (0.09) (0.19) (0.15) (0.13) --
Net realized gains (0.07) -- (0.63) (0.36) (0.03)
--------- --------- --------- --------- ---------
Total distributions (0.57) (0.26) (1.08) (0.67) (0.27)
--------- --------- --------- --------- ---------
Entry/exit fee per share 0.04 0.03 0.20 0.08 0.06
--------- --------- --------- --------- ---------
Net asset value, end of period $ 13.41 $ 11.42 $ 11.65 $ 12.08 $ 11.13
--------- --------- --------- --------- ---------
Total return (c) 22.65% 0.22% 5.51% 14.72% 13.87%(b)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (000s) $ 238,644 $ 291,847 $ 382,317 $ 218,244 $ 92,630
Ratio of expenses to average net assets 0.57% 0.65% 0.72% 1.03% 0.80%(a)
Ratio of net investment income to average net assets 2.20% 1.85% 3.30% 1.99% 4.00%(a)
Portfolio turnover 154.49% 196.06% 181.51% 100.66% 97.35%(b)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized.
(b) Not annualized.
(c) Total return includes the effects of entry/exit fees received by the Fund;
however, net asset value per share at the beginning of each period used for
calculating total return excludes such entry/exit fees.
* Commencement of operations.
** Including foreign currency-related transactions.
TIFF International Equity Fund
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
For a share outstanding throughout each year 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $ 11.17 $ 11.77 $ 12.19 $ 10.82 $ 9.98
Income from investment operations:
Net investment income 0.13 0.19 0.17 0.10 0.15
Net realized and unrealized gain (loss) on
investments* 3.93 0.12 (0.11) 1.59 0.80
--------- --------- --------- --------- ---------
Total from investment operations 4.06 0.31 0.06 1.69 0.95
Less distributions from:
Net investment income (0.05) (0.12) (0.16) (0.09) (0.14)
Amounts in excess of net investment income (0.08) (0.20) (0.09) -- --
Net realized gains (1.54) (0.62) (0.28) (0.26) --
--------- --------- --------- --------- ---------
Total distributions (1.67) (0.94) (0.53) (0.35) (0.14)
--------- --------- --------- --------- ---------
Entry/exit fee per share 0.02 0.03 0.05 0.03 0.03
Net asset value, end of year $ 13.58 $ 11.17 $ 11.77 $ 12.19 $ 10.82
--------- --------- --------- --------- ---------
Total return (b) 37.40% 3.03% (a) 0.91% 15.94% 9.85%
Ratios/Supplemental Data
Net assets, end of year (000s) $ 246,429 $ 260,030 $ 241,072 $ 219,458 $ 155,422
Ratio of expenses to average net assets 1.00% 0.81% (c) 1.21% 1.11% 1.05%
Ratio of expenses to average net assets before
expense waivers 1.00% 0.84% (c) 1.21% 1.11% 1.05%
Ratio of net investment income to average net assets 1.32% 1.47% 0.72% 0.91% 1.48%
Portfolio turnover 28.33% 30.62% 25.55% 32.40% 32.91%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total return would have been lower had certain expenses not been waived or
reimbursed.
(b) Total return includes the effects of entry/exit fees received by the Fund;
however, net asset value per share at the beginning and end of each year
used for calculating total return excludes such entry/exit fees.
(c) Expenses include tax expense for the year ended December 31, 1998. Without
the tax expense, the ratio of expenses to average net assets and the ratio
of expenses to average net assets before expense waivers would have been
0.76% and 0.79%, respectively.
* Including foreign currency-related transactions.
<PAGE>
Financial Highlights continued
TIFF Emerging Markets Fund
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
For a share outstanding throughout each year 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $ 5.19 $ 8.09 $ 8.63 $ 8.45 $ 9.24
Income from investment operations:
Net investment income (loss) (0.09) (0.01) 0.33 0.01 --
Net realized and unrealized gain (loss) on
investments* 3.99 (2.73) (2.83) 3.17 (0.82)
--------- --------- --------- --------- ---------
Total from investment operations 3.90 (2.74) (2.50) 3.18 (0.82)
Less distributions from:
Net investment income -- -- (0.24) (0.04) (0.00) #
Amounts in excess of net investment income (0.20) (0.17) (0.27) (0.00) # (0.00) #
Net realized gains -- -- -- (0.00) # --
--------- --------- --------- --------- ---------
Amounts in excess of net realized gains -- -- -- -- (0.00) #
Total distributions (0.20) (0.17) (0.51) (0.04) (0.00) #
--------- --------- --------- --------- ---------
Entry/exit fee per share 0.01 0.01 2.47 (2.96) 0.03
Net asset value, end of year $ 8.90 $ 5.19 $ 8.09 $ 8.63 $ 8.45
--------- --------- --------- --------- ---------
Total return (b) 75.49% (33.38%)(a) (0.40%) 2.51% (8.39%)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of year (000s) $ 82,396 $ 58,167 $ 83,836 $ 89,736 $ 59,486
Ratio of expenses to average net assets 1.73% 3.09% (c) 1.56% 1.62% 2.35%
Ratio of expenses to average net assets before
expense waivers/reimbursements 1.73% 3.14% (c) 1.56% 1.62% 2.35%
Ratio of net investment income (loss) to average net 0.01% (0.55%) 0.95% 0.06% (0.15%)
assets
Portfolio turnover 45.94% 47.62% 72.23% 79.96% 104.30%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total return would have been lower had certain expenses not been waived or
reimbursed.
(b) Total return includes the effects of entry/exit fees received by the Fund;
however, net asset value per share at the beginning and end of each year
used for calculating total return excludes such entry/exit fees.
(c) Expenses include tax expense for the year ended December 31, 1998. Without
the tax expense, the ratio of expenses to average net assets and the ratio
of expenses to average net assets before expense waivers would have been
2.98% and 3.03%, respectively.
# Rounds to less than $0.01.
* Including foreign currency-related transactions.
<TABLE>
<CAPTION>
TIFF US Equity Fund
Year Ended Year Ended Year Ended Year Ended Year Ended
For a share outstanding throughout each year 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $ 15.62 $ 15.66 $ 13.74 $ 12.36 $ 10.02
Income from investment operations:
Net investment income 0.09 0.17 0.50 0.20 0.20
Net realized and unrealized gain (loss) on investments 2.70 1.58 3.93 2.51 3.36
--------- --------- --------- --------- ---------
Total from investment operations 2.79 1.75 4.43 2.71 3.56
Less distributions from:
Net investment income (0.43) (0.07) (0.40) (0.17) (0.22)
Amounts in excess of net investment income -- (0.07) (0.11) (0.10) --
Net realized gains (2.21) (1.66) (2.01) (1.07) (1.01)
--------- --------- --------- --------- ---------
Total distributions (2.64) (1.80) (2.52) (1.34) (1.23)
--------- --------- --------- --------- ---------
Entry/exit fee per share 0.01 0.01 0.01 0.01 0.01
--------- --------- --------- --------- ---------
Net asset value, end of year $ 15.78 $ 15.62 $ 15.66 $ 13.74 $ 12.36
--------- --------- --------- --------- ---------
Total return (a) 18.89% 11.85% 33.01% 21.91% 36.02%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of year (000s) $ 280,853 $ 312,587 $ 255,714 $ 176,797 $ 109,901
Ratio of expenses to average net assets 0.67% 0.72% 0.70% 0.82% 0.93%
Ratio of net investment income to average net assets 0.68% 0.99% 1.34% 1.41% 1.67%
Portfolio turnover 73.59% 98.30% 108.52% 105.18% 109.89%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total return includes the effects of entry/exit fees received by the Fund;
however, net asset value per share at the beginning and end of each year
used for calculating total return excludes such entry/exit fees.
<PAGE>
Financial Highlights continued
TIFF Bond Fund
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
For a share outstanding throughout each year 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $ 10.29 $ 10.24 $ 10.06 $ 10.33 $ 9.68
Income from investment operations:
Net investment income 0.61 0.60 0.64 0.67 0.67
Net realized and unrealized gain (loss) on investments (0.65) 0.13 0.27 (0.27) 1.01
--------- --------- --------- --------- ---------
Total from investment operations (0.04) 0.73 0.91 0.40 1.68
Less distributions from:
Net investment income (0.63) (0.60) (0.64) (0.67) (0.66)
Amounts in excess of net investment income (0.00) # (0.02) (0.01) (0.00) # (0.01)
Net realized gains (0.02) (0.06) (0.08) -- (0.36)
--------- --------- --------- --------- ---------
Total distributions (0.65) (0.68) (0.73) (0.67) (1.03)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 9.60 $ 10.29 $ 10.24 $ 10.06 $ 10.33
--------- --------- --------- --------- ---------
Total return (0.45%) 7.31% 9.35% 3.75% 18.07%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of year (000s) $ 184,508 $ 197,652 $ 173,352 $ 127,491 $ 91,072
Ratio of expenses to average net assets 0.48% 0.46% 0.56% 0.58% 0.96%
Ratio of net investment income to average net assets 6.01% 5.82% 6.41% 6.64% 6.34%
Portfolio turnover 474.10% 329.49% 398.16% 332.21% 406.24%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
# Rounds to less than $0.01.
TIFF Short-Term Fund
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
For a share outstanding throughout each year 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $ 9.97 $ 9.95 $ 9.99 $ 10.01 $ 10.00
Income from investment operations:
Net investment income 0.52 0.54 0.54 0.54 0.58
Net realized and unrealized gain (loss) on investments (0.03) 0.01 (0.02) (0.02) 0.05
--------- --------- --------- --------- ---------
Total from investment operations 0.49 0.55 0.52 0.52 0.63
Less distributions from:
Net investment income (0.52) (0.53) (0.55) (0.54) (0.58)
Amounts in excess of net investment income (0.00) # -- (0.01) (0.00) # (0.00) #
Net realized gains -- -- -- -- (0.04)
--------- --------- --------- --------- ---------
Amounts in excess of net realized gains -- -- -- -- (0.00) #
---------
Total distributions (0.52) (0.53) (0.56) (0.54) (0.62)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 9.94 $ 9.97 $ 9.95 $ 9.99 $ 10.01
--------- --------- --------- --------- ---------
Total return (a) 4.93% 5.59% 5.30% 5.28% 6.43%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of year (000s) $ 89,756 $ 74,907 $ 34,431 $ 63,470 $ 96,580
Ratio of expenses to average net assets 0.35% 0.35% 0.47% 0.36% 0.42%
Ratio of expenses to average net assets before 0.45% 0.53% 0.56% 0.47% 0.54%
expense waivers
Ratio of net investment income to average net assets 5.14% 5.41% 5.53% 5.35% 5.67%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total return would have been lower had certain expenses not been waived or
reimbursed.
# Rounds to less than $0.01.
<PAGE>
Inquiries
Requests for the prospectus, SAI, and Annual or Semi-Annual Reports as well as
other inquiries concerning TIP may be made by contacting FAI at:
Foundation Advisers, Inc.
2405 Ivy Road
Charlottesville, VA 22903
Phone: 804-817-8200
Fax: 804-817-8231
E-mail: [email protected]
Website: www.tiff.org
<PAGE>
Appendix A
Money Manager and
Commingled Investment Vehicle Profiles
The following profiles include a summary of the investment approach utilized by
each Money Manager and each commingled investment vehicle in which the funds may
invest, based on materials provided by each Money Manager and each commingled
vehicle. These summaries are furnished as a means of assisting investors in
understanding how each Money Manager or commingled investment vehicle describes
its own approach.
Each profile also includes a description of fees to be paid by TIP to each Money
Manager and a description of fees chargeable to TIP as an investor in each
commingled investment vehicle. The performance-based fees of Money Managers are
presented in the form of graphs and formulas. For a detailed description of the
performance-based fee structure and the reasons underlying it, see Performance-
Based Fees for Money Managers in the Statement of Additional Information.
<PAGE>
Aronson + Partners Money Manager for the TIFF Multi-Asset and
TIFF US Equity Funds
Organization
230 South Broad Street
Twentieth Floor
Philadelphia, PA 19102
phone: 215-546-7500
fax: 215-546-7506
Independent Investment Counsel
Controlled by Theodore Aronson, Partner
Founded in 1984
Total Assets under Management: $4.0 bil (12/31/99)
Representative Clients
John D. and Catherine T. MacArthur Foundation
State of Florida
Virginia Retirement System
Personnel
Key TIP Account Manager
Theodore R. Aronson, CFA, CIC, Partner
MBA/BS, Wharton
1984-present: Aronson + Partners
previous experience: Addison Capital; Drexel
Burnham Lambert
Paul Dodge, CFA, Partner
BA, College of William & Mary
1994-present: Aronson + Partners
previous experience: Cambridge Associates
Kevin M. Johnson, Partner
PhD, North Carolina; BS, Delaware
1993-present: Aronson + Partners
previous experience: DuPont Pension; Vanguard Group
Martha E. Ortiz, CFA, CIC, Partner
MBA, Wharton; BA, Harvard
1987-present: Aronson + Partners
previous experience: Wilshire Associates;
Continental Grain
Investment Philosophy
Philosophy: Large Cap Equity
Assets Using This Philosophy: $1.9 bil (12/31/99)
Account Type: Separate Account
Investment Approach
The firm focuses on asset-rich companies (stocks with low price-to-book
ratios), selling at relatively low market valuations (stocks with low price-to-
earnings ratios), with proven management talent (reflected in a quantitative
measure of historic management savvy and confidence, dubbed the management
factor). A strict selection algorithm is applied separately to 11 economic
sectors that include the 400 largest cap stocks. Risk-adjusted relative
strength and estimate revision tests and an assessment of individual fundamental
characteristics produce final selection adjustments and determine individual
position sizes. Economic sector weights are held to within close tolerances of
their weights in the S&P 500. Portfolio changes are executed by a number of
trading methods, including electronic crossing and basket trades. The firm
measures and monitors closely its trading costs, including market impact and
opportunity costs. Portfolios contain an average of 100 to 120 stocks, ranging
in size from 0.4% to 5.0% of assets. Annual turnover averages 100%.
Manager's Benchmark
S&P 500 Stock Index
Fee Paid by TIP to This Manager
[GRAPH APPEARS HERE]
Fee = 15 + [ .250 x ( Excess Return - 90 ) ] subject to
Floor of 10 bp; Cap of 80 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
A-1
<PAGE>
Atlantic Asset Management, LLC Money Manager for the TIFF Bond Fund
Organization
Clearwater House
2187 Atlantic Street
Stamford, CT 06902
phone: 203-363-5100
fax: 203-363-5110
Independent Investment Counsel
Controlled by IBJ Whitehall, Ronald W. Sellers, and other principals of
Atlantic Asset Management
Founded in 1992
Total Assets under Management: $5.0 bil (12/31/99)
Representative Clients
Catholic Foundation
Local 282
Local 803
Masonic Charity Foundation
National Maritime Union
Omaha School Employees' Retirement System
Samford University
Personnel
Key TIP Account Managers
Ronald W. Sellers, President
MBA, Oklahoma State; MA, College of Holy Names;
AB, California-Berkeley
1992-present: Atlantic Asset Mgmt, LLC
1985-92: Weiss Peck & Greer, Partner,
Co-Director, Fixed Income
Elaine S. Hunt, CFA, Senior Vice President
MBA, Chicago; BA, Beloit College
1992-present: Atlantic Asset Mgmt, LLC
Weiss, Peck & Greer; William M. Mercer
Donald W. Trotter, CFA, Senior Vice President
MBA, Missouri; BS/BA, Kansas
1992-present: Atlantic Asset Mgmt, LLC
DeMarche Associates, Inc.; Phillips Petroleum
Robert F. Bayer, CFA, CPA, Senior Vice President,
Portfolio Strategist
MA, MIT; BS, Wharton
1998-present: Atlantic Asset Mgmt, LLC
1990-1998: Brundage Story and Rose
Victor P. Silano, Vice President, Mortagages
BBA, Dowling College
1999-present: Atlantic Asset Management, LLC
1997-1999: ARM Capital Advisors
Investment Philosophy
Philosophy: Active Duration
Assets Using This Philosophy: $59 mm (12/31/99)
Account Type: Separate Account
Investment Approach
Atlantic Asset Management manages fixed income portfolios using a proprietary
analytic framework that eliminates the need for economic or interest rate
forecasting. Quantitative methods are used to target and control portfolio risk
exposures. Portfolio duration is varied slightly around an index, a strategy
designed to benefit from interest rate volatility. This strategy entails the
purchase of longer maturity bonds as interest rates rise (prices fall) and their
sale as rates fall (prices rise) resulting in a buy low, sell high discipline.
The firm's exploitation of yield curve anomalies is based on statistical
analysis of recent past relationships between the shape of the yield curve and
subsequent returns. In the corporate sector, a well diversified portfolio is
constructed by screening companies to identify issuers with improving margins
and strong cash flows, thereby increasing the probability of credit upgrades
while reducing the possibility of downgrades. In the mortgage sector, option
adjusted valuation models are used to identify securities that can produce
returns from interest rate movements which are consistent with the overall
duration and yield strategy. The components of the strategy are combined
through the use of optimization programs to provide the best expected return
profile in a unified portfolio. Portfolio contains an average of 50 to 80
positions. Annual turnover averages 200%.
Manager's Benchmark
Lehman Government/Corporate Bond Index
Fee Paid by TIP to This Manager
[GRAPH APPEARS HERE]
Fee = 15 + [ .200 x ( Excess Return - 65 ) ] subject to
Floor of 10 bp; Cap of 60 bp
Measurement Period = Trailing 12 Month
Excess Return = Manager's Return - Benchmark Return
A-2
<PAGE>
Canyon Capital Management, LP Money Manager for the TIFF Multi-Asset Fund
Organization
Canyon Capital Advisors, LLC
9665 Wilshire Blvd., Suite 200
Beverly Hills, CA 90212
phone: 310-247-2700
fax: 310-247-2701
Independent Investment Adviser
Controlled by Joshua S. Friedman, Mitchell R. Julis,
R. Christian B. Evensen
Founded in 1990
Total Assets under Management: $763 mm (02/29/00)
Representative Clients
Grosvenor Capital Management, LP
Ivy Asset Management
McKinsey & Company, Inc.
Permal Asset Management
Pine Grove Associates
Worms Asset Management, Inc.
Personnel
Key TIP Account Managers
Joshua S. Friedman, Managing Partner
JD/MBA/BA, Harvard; MA, Oxford University
1990-present: Canyon Capital Advisors, LLC
Drexel Burnham Lambert
Mitchell R. Julis, Managing Partner
JD/MBA, Harvard; BA, Princeton
1990-present: Canyon Capital Advisors, LLC
Drexel Burnham Lambert
R. Christian B. Evensen, Managing Partner
BA, Williams College
1990-present: Canyon Capital Advisors, LLC
Drexel Burnham Lambert
Investment Vehicle
Vehicle: The Value Realization Fund, LP
Assets Using This Vehicle: $297 mm (2/29/00)
Account Type: Commingled Vehicle
Investment Approach
The Fund seeks above average gains (both capital appreciation and current
income) with moderate risk by employing a "bottom up" approach to investing in
financial instruments perceived to be inefficiently priced as a result of
business, financial, or legal uncertainties. Capital preservation is a
fundamental priority, and as a result, the Fund has a strong debt orientation.
Generally, the Fund invests in event driven situations, including bankruptcies,
reorganizations, mergers, spin-offs, and other special situations.
Manager's Benchmark
91-day Treasury bills plus 5% per annum
Fee Paid by TIP to This Manager
1% of net assets per annum plus 20% of net profit. The net profit interest is
subject to a "high water mark" provision that prohibits the manager's receipt of
a profit participation unless the market value of each partner's interest
exceeds its cost basis.
A-3
<PAGE>
City of London Investment Money Manager for the TIFF Emerging Markets Fund
Management Co., Ltd.
Organization
City of London
10 Eastcheap
London, England EC3M 1LX
phone: 44-207-711-0771
fax: 44-207-711-0772
City of London
The Barn
1125 Airport Road
Coatesville, PA 19320
phone: 610-380-2110
fax: 610-380-2116
Independent Investment Adviser
Controlled by FMH Investments NV, AMIC. Third Canadian Investments, AMB
Investments, Barry Olliff, Scaleoption CoL ESOP
Founded in 1991
Total Assets under Management: $1.0 bil (12/31/99)
Representative Clients
Bush Foundation
Duke University
General Mills
Robert Wood Johnson Foundation
Southern Methodist University
University of Richmond
Personnel
Key TIP Account Managers
Barry Olliff, Chief Portfolio Manager
1991-present: City of London Investment
Management Co., Ltd.
1987-1991: Olliff & Partners
1979-1987: Lains & Cruickshank
1964-1979: Denny Bros. (Pinchin Denny)
Mark Dwyer, Portfolio Manager
BA, Kingston University
1995-present: City of London Investment
Management Co., Ltd.
Melissa Novak, Portfolio Manager
BA, Dickinson College
1997- present: City of London Investment
Management Co., Ltd.
Investment Vehicle
Vehicle: Investable Emerging Markets Country Fund
Assets UsingThis Vehicle: $180 mm (12/31/99)
Account Type: Commingled Vehicle
Investment Approach
City of London's (CoL) investment philosophy is value oriented. The firm seeks
to provide long-term capital growth via active country allocation and stock
selection in emerging markets. Its key objective is to provide above average,
long-term outperformance versus the appropriate funds' emerging market
benchmark.
The firm aims to provide this outperformance with a significantly lower level of
risk than the benchmark index and its peer group. This is effected by the
choice of closed-end funds as the prime investment medium. Implementation of
the philosophy is by a disciplined investment methodology characterized as a
top-down approach to country asset allocation overlaid with a pure value
approach to stock selection.
Manager's Benchmark
MSCI Emerging Markets Free Index
Fee Paid by TIP to This Manager
1.5% of net assets per annum
A-4
<PAGE>
Delaware International Money Manager for the TIFF Multi-Asset
and TIFF International Equity Funds
Advisers Ltd.
Organization
Portfolio Management:
3rd Floor, 80 Cheapside
London, England EC2V 6EE
phone: 020-7477-7000
fax: 020-7523-0300
US Liaison Office:
Delaware Management Company, Inc. (Affiliate)
One Commerce Square
Philadelphia, PA 19103
phone: 215-972-2312
fax: 215-972-8849
Independent Investment Adviser
Controlled by Lincoln National Corporation
Founded in 1990 (Predecessor firm founded in 1929)
Total Assets under Management: $16.0 bil (12/31/99)
Representative Clients
Allied-Signal, Inc.
Father Flanagan's Boy's Town (DPT)
McDermott International
Sandia National Laboratories
Salvation Army (DPT)
Stanford Management Company
The Amherst H. Wilder Foundation (DPT)
Warner Lambert Company
Personnel
Key TIP Account Managers
David G. Tilles, Managing Director, CIO
Sorbonne/Warwick University/Heidelberg
University
1990-present: Delaware International Advisers Ltd.
1974-90: Hill Samuel Investment Advisers, CIO
Hamish O. Parker, Director and Senior Portfolio
Manager
Oxford University
1990-present: Delaware International Advisers Ltd.
1986-90: Hill Samuel Investment Advisers,
Senior Portfolio Manager
Other Personnel
Charles E. Haldeman, Jr., CFA, Chairman
JD/MBA, Harvard
2000-present: Delaware International Advisers Ltd.
2000-present: Lincoln National Investment Cos., Inc.
1998-2000: United Asset Management Corp.
1974-98: Cooke & Bicler, Inc.
Investment Philosophy
Philosophy: Value-Oriented International Equity Mgmt
Assets Using This Philosophy: $11.6 bil (12/31/99)
Account Type: Separate Account
Investment Approach
Delaware International is a value-oriented defensive manager. The company's
senior investment professionals have worked together for many years. The firm
invests in securities where dividend discount analysis identifies value in terms
of the long-term flow of income. The firm uses the same dividend discount
valuation model of future income streams across all countries, securities, and
industries. This distinguishes Delaware International from many of its
competitors that use different investment criteria in each country and sector.
The most important aspects of the firm's security selection process are
fundamental company analyses and a comprehensive program of visiting current and
prospective holdings. Equity market valuations are based on inflation-adjusted
dividend discount analysis, coupled with long-term purchasing power parity
analysis of currencies. The resulting valuations are then analyzed with the
help of a computer-based optimization program, which produces a list of
attractive portfolio allocations for consideration by Delaware International's
Investment Committee. As a defensive measure to protect real returns, Delaware
International will hedge a currency when its inflation-adjusted exchange rate
suggests that it is overvalued. The company's portfolios normally exhibit high-
income yields and low P/E ratios. Portfolios contain an average of 35 to 55
stocks. Annual turnover generally averages 25%.
Manager's Benchmark
MSCI EAFE Index
Fee Paid by TIP to This Manager
0.50% per annum on first $50 million
0.35% per annum on next $50 million
0.30% per annum on remainder
A-5
<PAGE>
Emerging Markets Management, LLC Money Manager for the TIFF Emerging
Markets Fund
Organization
1001 Nineteenth Street North, 16th Floor
Arlington, VA 22209-1722
phone: 703-243-5200
fax: 703-243-2464
Independent Registered Investment Adviser
A Limited Liability Corporation, the managing
shareholder of which is Emerging Markets Investors
Corporation, a Delaware corporation controlled by
Antoine van Agtmael
Founded in 1987
Total Assets under Management: $3.8 bil (12/31/99)
Representative Clients
Harvard Management Company
The Rockefeller Foundation
Yale University
Personnel
Key TIP Account Manager
Antoine W. van Agtmael, President & CIO
MBA, New York University; MA, Yale; BA, Netherlands
School of Economics
1987-present: Emerging Markets Management, LLC
Other Personnel
Michael Duffy, CFA, Managing Director
PhD/MA, Chicago; BA, Michigan
World Bank Pension Plan, Senior Pension Investment
Officer
Felicia Morrow, Managing Director & Portfolio Manager
(Latin America and Southeast Asia)
MBA, Harvard; BA, Stanford
World Bank, Consultant
John Niepold, Portfolio Manager (Africa)
MBA, UNC-Chapel Hill; BA, Davidson
Crosby Securities, Senior Investment Analyst
Dobrinka Cidrof, CFA, Portfolio Manager (Turkey)
MBA, George Washington Univ; BA, Bosphorous Univ
TEB Investment Bank
Arindam Bhattacharjee, CFA, Portfolio Manager (India)
MBA, American University; BA, Davidson University
World Bank
Martin Horn, Portfolio Manager (Quantitative Strategies)
Education in Germany
Citibank Global Asset Management London
Investment Philosophy
Philosophy: Emerging Markets
Assets Using This Philosophy: $485 mm (12/31/99)
Account Type: Separate Account
Investment Approach
EMM focuses on both maximizing long-term capital appreciation and on minimizing
volatility through broad diversification and a systematic, disciplined, and
quantitative investment approach. The firm's top-down approach is to invest in
most of the countries that are part of the emerging markets universe but to vary
weights (relative to market weights) on the basis of Emerging Markets
Management's proprietary country allocation model (probabilistic-based
allocation model with the key inputs being expected real returns, volatilty, and
benchmark country weights). Typically, no country is overweighted more than four
times its market weight and no country represents more than 25% of the
portfolio. The firm diversifies its equity investments over geographic sectors
and industries and through bottom-up selection of companies that are
characterized by attractive valuations and favorable return prospects over a
three- to five-year time horizon with market capitalizations typically at least
$15 million and having acceptable trading volumes for established core
positions. Increasingly, less well-researched (i.e., relatively undiscovered)
companies are making up the portfolio. The firm actively monitors a universe of
approximately 1,800 stocks in over 53 countries. Portfolios contain an average
of 250 stocks. About 40% of the issues in a typical account are drawn from
outside IFC and MSCI Emerging Markets indices. Annual turnover depends heavily
on market conditions, but has typically averaged 40%.
Manager's Benchmark
MSCI Emerging Markets Free Index
Fee Paid by TIP to This Manager
[GRAPH APPEARS HERE]
Fee = 105 + [ .394 x (Excess Return - 205) ] subject to
Floor of 40 bp; Cap of 300 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
A-6
<PAGE>
Everest Capital Limited Money Manager for the TIFF International Equity
and TIFF Emerging Markets Funds
Organization
Everest Capital Limited
Bank of Butterfield Building
65 Front Street, 6th Floor
Hamilton HM JX Bermuda
phone: 441-292-2200
fax: 441-292-2285
Independent Investment Adviser
Controlled by Marko Dimitrijevic
Founded in 1990
Total Assets under Management: $2.0 bil (12/31/99)
Representative Clients
Clients not disclosed.
Personnel
Key TIP Account Managers
Marko Dimitrijevic, President, Everest Capital Inc.
MBA, Stanford; BS, Univ of Lausanne (Switzerland)
1990-present: Everest Capital Limited
Timothy P. Mistele, Managing Director, Everest
Capital Inc.
MBA, Stanford; AB, Princeton
1997-present: Everest Capital Limited
Gabelli & Co. (Rye, New York)
Investment Vehicle
Vehicle: Everest Capital Frontier Fund
Assets Using This Vehicle: $510 mm (12/31/99)
Account Type: Commingled Vehicle
Investment Approach
Everest invests on an opportunistic basis in debt and equity securities that are
neglected, distressed, or inefficiently priced. Typical strategies and
investments include: (1) capital structure arbitrage - purchase long and sell
short two bonds of the same sovereign issuer to exploit aberrations in the
bonds' relative pricing or as a hedged way to maintain a long exposure; (2) high
yield and distressed debt - the purchase of bonds of emerging countries or
companies trading at distressed prices; (3) value investment - because much
emerging investing is done on a top-down or macro basis, many opportunities
exist for value investing employing fundamental bottom-up analysis; and (4)
arbitrages and special situations - the purchase of undervalued convertible
securities and closed-end funds, outright or via arbitrage strategies. In
addition, the Fund seeks arbitrages between a company's various classes of
stocks and its US listed ADRs.
Manager's Benchmark
MSCI Emerging Markets Free Index
Fee Paid by TIP to This Manager
1.5% of net assets per annum plus 20% of net profit
A-7
<PAGE>
Explorador Capital Management, LLC Money Manager for the TIFF Emerging
Markets Fund
Organization
One Maritime Plaza, Suite 1475
San Francisco, CA 94111
phone: 415-392-1300
fax: 415-392-1306
Independent Investment Counsel
Controlled by Andrew H. Cummins
Founded in 1995
Total Assets under Management: $ 75 mm (12/31/99)
Representative Clients
Clients not disclosed.
Personnel
Key TIP Account Manager
Andrew H. Cummins, Portfolio Manager
MBA, Harvard; BS, University of California-Berkeley
1995-present: Explorador Capital Management, LLC
1992-1995: Emerging Markets Investors Corporation
Oswaldo Sandoval, Co-Portfolio Manager
MBA, Stanford; BS, University of Pennsylvania
1997-present: Explorador Capital Management, LLC
1993-1995: IFC at World Bank
Investment Vehicle
Vehicles: The Explorador Fund, LP
Assets Using This Vehicle: $75 mm (12/31/99)
Account Type: Commingled Vehicle
Investment Approach
Explorador Capital specializes in equity investments in Latin America. The fund
seeks to generate superior risk-adjusted rates of return through investment
opportunities in Latin America. Despite higher political risks and less
economic stability in countries in the region, the premium paid to investors to
assume such risks is occasionally very compelling. In addition to long equity
positions, the fund also seeks to exploit relative value "paired-trades" and
other short-term volatility-driven opportunities. To mitigate the negative
effects of strong market corrections, the fund maintains, from time to time,
short positions in shares of companies that its managers believe to be
overvalued. A typical core position might represent 3%-5% of fund capital, but
the fund will commit up to 15% to the securities of a single issuer if the
fundamental outlook is sufficiently attractive.
Manager's Benchmark
MSCI Emerging Markets Free Index
Fee Paid by TIP to This Manager
1.5% of net assets per annum
A-8
<PAGE>
Farallon Capital Management, LLC Money Manager for the TIFF Multi-Asset Fund
Organization
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
phone: 415-421-2132
fax: 415-421-2133
Independent Investment Adviser
Controlled by Thomas F. Steyer
Founded in 1990
Total Assets under Management: $5.4 bil (2/1/00)
Representative Clients
Clients not disclosed.
Personnel
Key TIP Account Manager
Thomas F. Steyer, Senior Managing Member
MBA, Stanford University; BA, Yale University
1990-present: Farallon Capital Management, LLC
Managing Members
Enrique Boilini
David Cohen
Joseph Downes
William Duhamel
Jason Fish
Andrew Fremder
Richard Fried
William Mellin
Stephen Millham
Meridee Moore
Andrew Spokes
Investment Vehicle
Vehicle: Farallon Capital Institutional Partners, LP
Assets Using This Vehicle: $1.5 bil (2/1/00)
Account Type: Limited Partnership
Investment Approach
Farallon's investments are primarily "event driven," in which a known or
expected event will cause an appreciation in the value of a particular portfolio
position. Holdings include securities and other claims associated with
reorganizations, bankruptcies, liquidations, recapitalizations, mergers, tender
offers, or exchange offers; non-performing and sub-performing mortgages;
securities affected by ongoing or pending litigation; emerging market
securities; and securities held to facilitate fixed income arbitrage. Merger
arbitrage opportunities have improved over the last year and risk arbitrage
remains a core business for Farallon. In addition, a significant portion of
Farallon's investments have been in the bank debt of troubled companies and in
loans to private limited partnerships and LLCs that invest in underlying assets
such as real estate and mortgage loans. Convertible securities arbitrage,
direct investments, and liquidations make up the balance of Farallon's
portfolio. Farallon maintains a diversified portfolio in which no single
investment determines success or failure. The portfolio typically consists of
more than 150 core positions.
Manager's Benchmark
91-day Treasury bills plus 5% per annum
Fee Paid by TIP to This Manager
1% of net assets per annum plus 20% of net profit
A-9
<PAGE>
Fischer Francis Trees & Watts, Inc. Money Manager for the TIFF
Short-Term Fund
Organization
200 Park Avenue, 46th Floor
New York, NY 10166
phone: 212-681-3000
fax: 212-681-3250
Independent Investment Counsel
Controlled by Charter Atlantic Corporation
Founded in 1972
Total Assets under Management: $30 bil (12/31/99)
Representative Clients
Dow Chemical Company
Fortune Brands
Genentech
Monsanto Company
PG&E
The World Bank
Personnel
Key TIP Account Managers
David J. Marmon, Managing Director
MA, Duke; BA, Alma College
1990-present: Fischer Francis Trees & Watts, Inc.
1988-90: Yamaichi International, Vice President
Jeffrey Holtman, Portfolio Manager
BS, Carnegie Mellon University
1996-present: Fischer Francis Trees & Watts, Inc.
1994-96: J.P. Morgan
Other Personnel
Karen McKeel Calby, Director, Client Service
MBA, Wharton; AB, Dartmouth College
Oliver, Wyman & Company, Partner
O. John Olcay, Managing Director
MBA/MA, Wharton; BA, Robert College
W. Greenwell, Managing Partner
Investment Philosophy
Philosophy: Enhanced Cash
Assets Using This Philosophy: $4.4 bil (12/31/99)
Account Type: Separate or Commingled
Investment Approach
FFTW seeks to outperform its benchmark while simultaneously limiting risk by
making frequent small changes in positions. The firm focuses on five specific
areas (in rough order of potential return contribution): duration exposure,
maturity selection (or yield curve), sector allocation, credit, and selection of
individual securities. FFTW assesses the possibilities and opportunities in
each of these dimensions and takes exposures away from the benchmark, relying on
technical analysis, historical spread relationships, economic and portfolio
models, and market convictions. Throughout the process, a number of proprietary
computer models are employed. These include a portfolio optimization model that
suggests portfolio structures in accord with investment scenarios suggested by
the investment team and an unemployment model that projects forthcoming
employment data and translates portfolio managers' views of rate relationships
into optimal portfolios. Portfolios contain an average of 20 to 25 positions.
Annual turnover averages 20 to 30 times per year.
Manager's Benchmark
Merrill Lynch 182-day Treasury bill Index
Fee Paid by TIP to This Manager
0.20% on first $100 million
0.15% on remainder
A-10
<PAGE>
Harding, Loevner Management, LP Money Manager for the TIFF Multi-Asset and
TIFF International Equity Funds
Organization
50 Division Street, Suite 401
Somerville, NJ 08876
phone: 908-218-7900
fax: 908-218-1915
Independent Investment Counsel
Controlled by Daniel D. Harding, CIO; David R. Loevner, CEO; Simon Hallett,
Senior Portfolio Manager
Founded in 1989
Total Assets under Management: $1.4 bil (12/31/99)
Representative Clients
Carleton College
Catholic University of America
Robert Wood Johnson Foundation
Longwood Gardens
Mercersburg Academy
Museum of Natural History
National Gallery of Art
Public Welfare Foundation
Personnel
Key TIP Account Managers
Simon Hallett, CFA, Senior Portfolio Manager
MA, Oxford
1991-present: Harding, Loevner Management
1984-90: Jardine Fleming Investment Management,
Director
Daniel D. Harding, CFA, CIO
BA, Colgate University
1989-present: Harding, Loevner Management
1978-89: Rockefeller & Co., Senior Investment Manager
Other Personnel
David R. Loevner, CFA, CEO
MPhil/MSc, Oxford; AB, Princeton
Harding, Loevner Management
Rockefeller & Co., Ltd., Managing Director
World Bank, Economist
Investment Philosophy
Philosophy: Global and International Equity
Assets Using Global Philosophy: $112 mm (12/31/99)
Assets Using International Philosophy: $1.25 bil (12/31/99)
Account Type: Separate Account
Investment Approach
HLM's investment approach is "bottom up." Stock selection criteria include
growth, quality, and value considerations. HLM seeks to identify companies with
capital strength, sustainable internally generated growth, high financial
returns, capable and forthright management, and enduring competitive advantages.
It invests only in companies that it knows well, generally through research and
visitation conducted over a period of years. Valuation tests, including local
market and cross-border comparisons, help determine when to invest in companies
meeting the firm's growth and quality standards. HLM invests for the long term,
divesting only if a company's shares become greatly overvalued or if its
business results, management quality, or competitive position change for the
worse. Portfolios are broadly diversified by country, industry, and size.
Country weightings reflect the results of stock selection, rather than any
explicit allocation process. However, prospects for its respective industry,
national economy, and stock market are important factors in HLM's evaluation of
an individual stock and thus strongly influence portfolio weightings. Foreign
currency exposure is hedged occasionally. Portfolios contain an average of 45
stocks. Annual turnover averages 35%.
Manager's Benchmark
MSCI All Country World Free Index (MAF) or
MSCI All Country World Free ex US Index (IEF)
Fee Paid by TIP to This Manager
[GRAPH APPEARS HERE]
Fee = 30 + [ .185 x ( Excess Return - 130 ) ] subject to
Floor of 10 bp; Cap of 150 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
A-11
<PAGE>
Lazard Asset Management Money Manager for the TIFF Multi-Asset, TIFF
International Equity, and TIFF Emerging Markets Funds
Organization
30 Rockefeller Plaza
New York, NY 10112-6300
phone: 212-632-6000
fax: 212-332-5913
Independent Investment Counsel
Wholly owned by Lazard Freres & Company
Founded in 1848
Total Assets under Management: $74.4 bil (12/31/99)
Closed-end Funds: $1.3 bil (12/31/99)
Representative Clients
Howard Hughes Medical Institute
ITT Pension Fund
Marathon Oil
Mayo Foundation
Ohio State Retirement System
Phoenix Mutual
Swarthmore College
US Steel & Carnegie
Personnel
Key TIP Account Managers
Alexander Zagoreos, Managing Director
MIA/MBA/BA, Columbia University
1977-present: Lazard Asset Management
Kun Geoffrey Deng, Senior Vice President
MIA, Columbia University; MA, Beijing University
1997-present: Lazard Asset Management
1994-97: Newgate Asset Management
Lee Ann Cannon, Vice President
MBA, New York University; BA, University of Delaware
1991-present: Lazard Asset Management
1990-91: Mitsubishi Bank
John K. Chase, Vice President and Portfolio Analyst
MBA, Rensselaer Polytechnic; BA, St. Anselm College
1997-present: Lazard Asset Management
1995-97: The Recovery Group
Vikram Raju, Vice President and Portfolio Analyst
MIA, Columbia; MBA/BA, Bombay University
1997-present: Lazard Asset Management
1996-97: Merrill Lynch & Co.
J. Steuart Marshall, Assistant Portfolio Manager
BA, Denison University
1994-present: Lazard Asset Management
1990-94: US Trust
Investment Philosophy
Philosophy: Emerging Markets Portfolio
Assets Using This Philosophy: $1.2 bil (12/31/99)
Account Type: Separate or Commingled
Investment Approach
Lazard Asset Management seeks long-term capital appreciation primarily through
investing in an internationally diversified portfolio of closed-end funds that
invest in companies outside the United States. The closed-end funds in which
the Fund invests will ordinarily be trading at a discount to their underlying
net asset value. The manager uses a top down approach seeking markets that it
deems undervalued on a price to earnings, price to cash, price to book, and
return on asset basis. Using these parameters, the manager uses closed-end
funds that have strong performance records and that trade at steep discounts to
asset value.
Manager's Benchmark
MSCI Emerging Markets Free Index
Fee Paid by TIP to This Manager
0.50% straight asset-based fee
A-12
<PAGE>
Lone Pine Capital LLC Money Manager for the TIFF Multi-Asset Fund
Organization
Independent Investment Counsel
Controlled by Stephen F. Mandel, Jr.
Founded in 1997
Total Assets under Management: $1.4 bil (12/31/99)
Representative Clients
Clients not disclosed.
Personnel
Key TIP Account Managers
Stephen F. Mandel, Jr., Portfolio Manager and
Consumer Analyst
MBA, Harvard; BS, Dartmouth
1997-present: Lone Pine Management LLC
1990-1997: Tiger Management
John B. Sommi, Jr., Managing Director, Trading
BS, University of Virginia
1997-present: Lone Pine Management LLC
1992-1997: Tiger Management
Other Personnel
Kerry A. Tyler, Managing Director, Chief Financial
Officer
BS, University of Arizona
previous experience: SoundView Financial Group, Ernst
& Young LLP; KPMG Peat Marwick LLP
Leslie Dahl, Director of Investor Services
AB, Dartmouth
previous experience: J.P. Morgan & Co., Inc.
Investment Vehicle
Philosophy: Lone Redwood, LP
Assets Using This Vehicle: $711 mm (12/31/99)
Account Type: Commingled Vehicle
Investment Approach
Lone Pine Capital (LPC) invests primarily in equity and equity-related
securities based on a bottom-up, fundamental analysis of stock picking, long and
short. The portfolio typically contains 50 to 75 long positions averaging three
to five percent of equity each and 75 to 125 short positions averaging one to
two percent of equity each. LPC invests primarily in issues within the
following economic sectors: (1) telecom/media, (2) healthcare, (3)
consumer/retail, (4) technology, and (5) financial services. The partnership
invests globally, although the majority of the capital is invested in US stocks.
Currency exposure is not hedged and is minimized through natural hedges -
offsetting longs or shorts - to minimize exposure to any single currency. LPC
may invest up to five percent of the fund's total assets in private placement
securities, utilize both over-the-counter and exchange traded instruments invest
in other investment funds, and invest in the high yield and convertible fixed
income markets.
Manager's Benchmark
91-day Treasury bills plus 5% per annum
Fee Paid by TIP to This Manager
1% of net assets per annum plus 20% of net profit for the fiscal year in excess
of the hurdle amount. The hurdle amount is the amount that a limited partner
would have earned for a fiscal year if it had received an annual rate of return
on its opening capital account equivalent to the one-year US Treasury bill rate
as of the close of business on the last Business Day of the preceding fiscal
year, but in no event will the applicable rate exceed 8%.
A-13
<PAGE>
Marathon Asset Management, Ltd. Money Manager for the TIFF
International Equity Fund
Organization
Orion House
5 Upper St. Martin's Lane
London, England WC2H 9EA
phone: 44 20 7497 2211
fax: 44 20 7497 2399
Independent Investment Counsel
Controlled by William J. Arah, Jeremy J. Hosking, and
Neil M. Ostrer, Investment Directors
Founded in 1986
Total Assets under Management: $10.6 bil (12/31/99)
Representative Clients
Asea Brown Boveri Inc.
GTE Corporation
Minnesota Mining & Manufacturing
Pennsylvania Public School Employees' Retirement
System
University of Michigan
Personnel
Key TIP Account Managers
Jeremy J. Hosking, Director
MA, Cambridge University
1986-present: Marathon Asset Management, Ltd.
previous experience: G.T. Management (Asia) Ltd.
William J. Arah, Director
MA, Oxford University
1987-present: Marathon Asset Management, Ltd.
previous experience: Goldman Sachs & Co. (Tokyo)
Neil M. Ostrer, Director
MA, Cambridge University
1986-present: Marathon Asset Management, Ltd.
Carnegie International, Director, Institutional Sales
previous experience: GT Management, Manager and Director
Investment Philosophy
Philosophy: Active International Equities
Assets Using This Philosophy: $10.6 bil (12/31/99)
Account Type: Separate Account
Investment Approach
The firm believes that above-market returns can be generated from disciplined
stock-picking in global equity markets. Marathon employs three qualitative
disciplines, all of which it believes have predictive power for shareholder
value. The essence of the firm's approach, which it refers to as "supply side"
analysis, is to focus on variables that are under the control of companies,
rather than the economic environment. In particular, Marathon monitors the
competitive environment within industries, focusing on industries marked by
consolidation and a declining number of competitors, eschewing industries with
rising competition. Levels of capital spending are also monitored closely. At
the company level, Marathon visits company managements and evaluates specific
reinvestment strategies within an industry context. In country selection,
priority is given to top down monetary conditions rather than economic growth.
Portfolios typically represent a hybrid of value, growth, and economic themes
whose attributes would be difficult to replicate using quantitative techniques.
Portfolios contain an average of 150 to 200 stocks. Annual turnover averages
less than 50%.
Manager's Benchmark
MSCI All Country World Free ex US Index
Fee Paid by TIP to This Manager
[GRAPH APPEARS HERE]
Fee = 40 + [ .167 x ( Excess Return - 140 ) ] subject to
Floor of 15 bp; Cap of 160 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
A-14
<PAGE>
Martingale Asset Management, LP Money Manager for the TIFF US Equity Fund
Organization
222 Berkeley Street
Boston, MA 02116
phone: 617-424-4700
fax: 617-424-4747
Independent Investment Counsel
Controlled by Commerzbank AG
Founded in 1987
Total Assets under Management: $1.4 bil (12/31/99)
Representative Clients
Dartmouth College
General Motors Corporation
Pennsylvania State Employees Retirement System
Saint-Gobain Corporation
University of Southern California
Personnel
Key TIP Account Manager
William E. Jacques, CFA, Executive Vice President,
Chief Investment Officer
MBA, Wharton School; BA, Lafayette College
1987-present: Martingale Asset Management, LP
previous experience: Batterymarch Financial
Management, Vice President, Trustee
Other Personnel
Patricia J. O'Connor, Sr. Vice President, Treasurer
University of Massachusetts, Boston College
previous experience: Batterymarch Financial Management
Arnold S. Wood, President, CEO
BA, Trinity College
previous experience: Batterymarch Financial Management
Investment Philosophy
Philosophy: Active Completeness Manager
Assets Using This Philosophy: $237 mm (12/31/99)
Account Type: Separate Account
Investment Approach
The functions of the Martingale active completeness portfolio are, stated in
order of importance: (1) to ensure that the US Equity Fund is not overly under-
or overweighted in important market sectors; (2) to minimize the undesirable
"misfit risk" characteristic of most multi-manager fund structures, thereby
limiting the Fund's exposure to uncompensated volatility of its returns relative
to returns on the Wilshire 5000; and (3) in attempting to perform the two
preceding functions, to add value where possible through the selection of
fundamentally underpriced stocks. It is reasonable to think of the active
completeness portfolio as customized diversification. Many institutional funds
experience risk from chronic underexposure to the electric utility and telephone
industries. Commonly used asset weighting policies of active managers
systematically underrepresent large capitalization stocks. Overweighted
positions in higher volatility stocks, notably healthcare and drug companies,
add uncompensated risk. In performing its assigned duties, Martingale employs a
variety of computer-based analytical tools, including stock valuation techniques
that emphasize heavily an assessment of perceived investor preferences. The
firm uses a variety of sector-specific models (e.g., cyclical stocks are
analyzed differently than utilities) to analyze the prices investors currently
pay for earnings, assets, growth, and risk. Differences between the perceived
"fair market value" of issues and their market prices represent opportunities
for Martingale to generate incremental returns while also ensuring that the
Fund's holdings are properly diversified. Martingale puts all trades out for
competitive bid among several brokers and attempts to keep trading costs well
below instituitonal norms. Portfolios contain an average of 100 to 200 stocks.
Annual turnover ranges from 60% to 100%.
Manager's Benchmark
Customized for TIFF US Equity Fund
Fee Paid by TIP to This Manager
0.10% on first $100 million
0.08% on next $200 million
0.07% on next $200 million
0.05% on excess over $500 million
Percentages apply to total US Equity Fund assets (reflecting Martingale's unique
role as active completeness manager).
A-15
<PAGE>
Oechsle International Advisors, LLC Money Manager for the TIFF Multi-Asset
and International Equity Funds
Organization
One International Place
Boston, MA 02110
phone: 617-330-8810
fax: 617-330-8620
Independent Investment Counsel
Controlled by principals of Oechsle International
Advisors, LLC
Founded in 1986
Total Assets under Management: $19.1 bil (12/31/99)
Representative Clients
Ameritech
CalPERS
Eastman Kodak
Stanford University
Frank Russell Trust Company
Personnel
Key TIP Account Manager
S. Dewey Keesler, Jr., Chief Investment Officer
BA, Washington & Lee
1986-present: Oechsle International Advisors, LLC
previous experience: Putnam International Advisors
Kathleen Harris, CFA, Principal
MBA, University of Chicago; BS, Illinois
1995-present: Oechsle International Advisors, LLC
previous experience: State of Wisconsin Investment Board
L. Sean Roche, Principal
BSC, London School of Economics
1986-present: Oechsle International Advisors, LLC
previous experience: Putnam International
Martina Oechsle Vasconcelles, Principal
MBA, University of Chicago; BA, Northwestern
1990-present: Oechsle International Advisors, LLC
previous experience: Coldwell Banker
Investment Philosophy
Philosophy: International Equity
Assets (Core-Plus/Emerging Mkts): $6.6 bil (12/31/99)
Assets (Select): $916 mm (12/31/99)
Account Type: Separate Account
Investment Approach
Oechsle's investment process is rooted in fundamental analysis. A judgmental,
team process is used to combine top-down and bottom-up fundamental analysis in
order to identify the most attractive markets and individual securities in the
World (ex US). The firm's research focuses on a one- to two-year horizon where,
in its judgment, the greatest identifiable inefficiencies occur. The firm seeks
to identify inefficiencies both within and among the international equity
markets. A Select portfolio uses the "best ideas" arising from this process.
Manager's Benchmark
MSCI All Country World Free ex US Index
Fee Paid by TIP to This Manager
Core Plus with Emerging Markets
[GRAPH APPEARS HERE]
Fee = 40 + [.100 x (Excess Return - 200)] subject to
Floor of 20 bp; Cap of 60 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
Select
[GRAPH APPEARS HERE]
Fee = 60 + [.133 x (Excess Return - 300)] subject to
Floor of 20 bp; Cap of 100 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
A-16
<PAGE>
Palo Alto Investors Money Manager for the TIFF
US Equity Fund
Organization
470 University Avenue
Palo Alto, CA 94301
phone: 650-325-0772
fax: 650-325-5028
Independent Investment Counsel
Controlled by William L. Edwards, President
Founded in 1989
Total Assets under Management: $151 mm (12/31/99)
Representative Clients
Clients not disclosed.
Personnel
Key TIP Account Manager
William L. Edwards, President
MS/BS, Stanford
1989-present: Palo Alto Investors
1987-89: Volpe & Covington, Partner
1982-87: T. Rowe Price, Vice President
Ted Janus, Analyst
MBA/BA, University of California
1997-present: Palo Alto Investors
1994-1997: Bank of America, Vice President
1985-1992: City of Palo Alto, Project Manager
Paul L. Zweng, Analyst
PhD/BS, Stanford; MS, Queen's University
1995-1999: BHP Copper, Manager New Business
Development
1988-1995: Patagonia Exploration, Inc., Founder &
President
Anthony Joon Yun
MD, Duke University; BA, Harvard
1998-present: Targesome Corporation, Founder, Medical
Director
1995-present: Stanford University Medical Center
Investment Philosophy
Philosophy: Micro-Cap Opportunistic Small Cap Value
Assets Using This Philosophy: $151 mm (12/31/99)
Account Type: Separate Account
Investment Approach
Palo Alto Investors specializes in very small, publicly traded equities. The
firm concentrates on companies with market values under $300 million; its median
capitalization is typically between $60 and $90 million. These securities tend
to have a very low correlation to the market and are less efficiently priced
than larger capitalization stocks. Palo Alto does its own extensive, original
research. This work is designed to enable the firm to look beyond past earnings
difficulties or product transitions to find companies with limited downside risk
and excellent upside potential. The firm believes that quality management is
extremely important, particularly in small companies. It visits every company in
which it invests, looking for high inside ownership and competent and motivated
management teams. In doing so, the firm seeks demonstrable proof that
management's goals are aligned with shareholder goals, which is often a reliable
predictor of above-average stock market performance. Portfolios are highly
concentrated and have low (30%-40%) annual turnover.
Manager's Benchmark
Russell 2000 Stock Index
Fee Paid by TIP to This Manager
[GRAPH APPEARS HERE]
Fee = 20 + [ .198 x ( Excess Return - 95 ) ] subject to
Floor of 10 bp; Cap of 200 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
A-17
<PAGE>
Seix Investment Advisors, Inc. Money Manager for the TIFF Multi-Asset
and TIFF Bond Funds
Organization
300 Tice Boulevard
Woodcliff Lake, NJ 07675-7633
phone: 201-391-0300
fax: 201-391-0303
Independent Investment Counsel
Controlled by Christina Seix, Chairman and CIO
Founded in 1992
Total Assets under Management: $5.2 bil (12/31/99)
Representative Clients
Bell Atlantic
City of Hope
Ford Foundation
GTE
Indiana State Teachers
Los Angeles Philharmonic
Shell Oil
The Turrell Foundation
UFCW International
United Methodist Church
Personnel
Key TIP Account Managers
Christina Seix, CFA, Chairman and CIO
MA, State University of New York; BA, Fordham
1992-present: Seix Investment Advisors, Inc.
1987-92: MacKay-Shields, Chairman and CEO
John Talty, CFA, President
BA, Connecticut College
1993-present: Seix Investment Advisors, Inc.
1991-92: J.P. Morgan Securities, Senior Fixed Income
Strategist
1988-91: Morgan Stanley & Co., Portfolio Strategist
Barbara Hoffmann, Managing Director, Fixed Income
1994-present: Seix Investment Advisors, Inc.
1993-94: MetLife Investment Management Corp., Senior
Bond Portfolio Manager
1991-93: Capital Growth Management, Senior Bond
Portfolio Manager
Investment Philosophy
Philosophy: Full Market Bond
Assets Using This Philosophy: $2.6 bil (12/31/99)
Account Type: Separate Account
Investment Approach
The firm's fixed income investment approach is founded on four cornerstones: (1)
Targeted Duration, (2) Yield Tilt, (3) Comprehensive Sector Construction, and
(4) the use of Proprietary Analytics. Targeted Duration: Portfolios are managed
with a duration that is close to the duration of their benchmark. Value is added
through sector, security, and yield curve decisions rather than maturity
management. Yield Tilt: Although portfolios are managed on a total return
basis, a premium is placed on yield. Income is considered the most powerful
contributor to fixed income returns. Non-Treasury sectors generally play a
dominant role in the portfolio. The yield of the benchmark is used as a
performance goal in addition to its total return. Comprehensive Sector
Construction: Sector commitments are made based on the duration contribution of
each sector to the overall duration of the portfolio rather than the sector
weighting. Proprietary Analytics: Because of the growing complexity of the
bond market, the firm believes that the use of proprietary techniques is key to
identifying value and to adequately controlling risk. Portfolios contain an
average of 50 to 60 positions. Annual turnover averages 200% to 250%.
Manager's Benchmark
Lehman Aggregate Bond Index (MAF) or
Lehman Government/Corporate Bond Index (BF)
Fee Paid by TIP to This Manager
[GRAPH APPEARS HERE]
Fee = 15 + [ .231 x ( Excess Return - 65 ) ] subject to
Floor of 10 bp; Cap of 80 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
A-18
<PAGE>
Shapiro Capital Management Company, Inc. Money Manager for the TIFF
US Equity Fund
Organization
One Buckhead Plaza, Suite 1555
3060 Peachtree Road, N.W.
Atlanta, GA 30305
phone: 404-842-9600
fax: 404-842-9601
Independent Investment Counsel
Controlled by Samuel R. Shapiro
Founded in 1990
Total Assets under Management: $1.1 bil (12/31/99)
Representative Clients
Federal Express Corporation
Joyce Mertz-Gilmore Foundation
Montgomery Securities
New York State Teachers Retirement System
Tredegar Industries, Inc.
University of Richmond
Personnel
Key TIP Account Managers
Samuel R. Shapiro, President and CIO
BBA, University of Georgia
1990-present: Shapiro Capital Management Co., Inc.
1977-1989: Bear Stearns & Co.
Michael McCarthy, CFA, Director of Research
MSIM, Georgia Institute of Technology; BS, New Jersey
Institute of Technology
1990-present: Shapiro Capital Management Co., Inc.
Louis Shapiro, Research/Portfolio Manager
ABJ, University of Georgia
1992-present: Shapiro Capital Management Co., Inc.
Investment Philosophy
Philosophy: Small Cap Value
Assets Using This Philosophy: $950 mm (12/31/99)
Account Type: Separate Account
Investment Approach
Shapiro Capital Management (SCM) employs a research intensive, value approach
that often entails a contrarian stance versus market consensus. Value is
determined with respect to the economic return available at the operational
level of a company. To qualify as an investment candidate, a company must
compete in an industry that is easily understood and that displays superior
economic characteristics. Common attributes of companies that qualify as
investment candidates include (1) a high return on invested assets, (2) ample
free cash flow, (3) true franchise characteristics, (4) significant barriers to
entry, (5) products with minimal chance of obsolescence, (6) substantial
congruence of financial interests between management and outside shareholders.
Each investment is preceded by a comprehensive analysis performed by SCM's
principals. The research includes an exhaustive analysis of financial statements
including all published material for at least the three most recent fiscal
years. Areas of focus include historical accounting procedures, asset
valuations, and cash flow. Management interviews are conducted both prior to
purchase and throughout each stock's holding period. Company facilities are
visited when doing so can provide additional insight into a firm's operations.
Interviews with suppliers, competitors, and customers are an integral part of
the research process. By assuming a proactive research-based approach, SCM
accepts responsibility for all of its investments rather than being held
accountable for the efforts and opinions of others.
Manager's Benchmark
Russell 2000 Index
Fee Paid by TIP to This Manager
[GRAPH APPEARS HERE]
Fee = 46 + [ .130 x ( Excess Return - 121 ) ] subject to
Floor of 50 bp; Cap of 95 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
A-19
<PAGE>
Smith Breeden Associates, Inc. Money Manager for the TIFF Bond Fund
Organization
100 Europa Drive, Suite 200
Chapel Hill, NC 27514
phone: 919-967-7221
fax: 919-933-3157
Independent Investment Counsel
Controlled by Douglas T. Breeden, Chairman of the Board
Founded in 1982
Total Assets under Management: $8.2 bil (12/31/99)
Representative Clients
Amdahl Corporation
Columbia/HCA Healthcare Corporation
Eastman Kodak Company
State of Florida, Division of Treasury
State of Florida, SBA
State of New Mexico Public Employees
Retirement Association
Unisys Corporation
Personnel
Key TIP Account Managers
Daniel C. Dektar, Principal, Director
MBA, Stanford; BS, California-Berkeley
1986-present: Smith Breeden Associates, Inc.
Timothy D. Rowe, Principal
MBA, Chicago; BA, Duke University
1988-present: Smith Breeden Associates, Inc.
William F. Quinn, CFA, Principal
MS/BS, MIT
1986-present: Smith Breeden Associates, Inc.
Key TIP Contact
Stephen A. Eason, CFA, Principal, Director
MBA, Wharton; BS, Arkansas
Salomon Brothers, Vice President
Chase Manhattan Bank, Assistant Treasurer
Other Personnel
Douglas T. Breeden, Chairman of the Board
PhD, Stanford; BS, MIT
Stanford/Chicago/Duke, Professor of Finance
The Journal of Fixed Income, Editor
- ---------------------------
Eugene Flood, Jr., President and CFO
PhD, MIT; BA, Harvard
Morgan Stanley Asset Management
Investment Philosophy
Philosophy: Bond
Assets Using This Philosophy: $5.2 bil (12/31/99)
Account Type: Separate Account
Investment Approach
Smith Breeden believes that in-depth research can provide a superior
understanding of fixed income security relative value, and the goal of its
research effort is to identify investments that generate risk-adjusted returns
in excess of the market return. By constructing a portfolio of such securities
and matching the portfolio's effective duration to the benchmark duration the
firm seeks to produce a total return in excess of the benchmark return without
incremental interest rate risk. Smith Breeden's research seeks to identify
attractive investment opportunities in the Agency mortgage-backed security
market, and the firm's portfolios are typically concentrated in this high credit
quality sector. The firm's prepayment forecasting and mortgage option-adjusted
pricing techniques are the outgrowth of seventeen years of proprietary research
and development. This technology has enabled Smith Breeden portfolio managers
to detect and measure differences in prepayment forecasts among different sets
of investors, and in turn to construct portfolios that seek to exploit these
market inefficiencies. Smith Breeden believes that the incremental return
available from relative value analysis and research is significantly greater and
more consistent than the incremental return from predicting the direction of
interest rates; therefore, its professionals do not incorporate any interest
rate forecasts into their investment decisions. Portfolios contain an average
of 30 to 50 positions. Annual turnover averages between 200% and 300%.
Manager's Benchmark
Lehman Mortgage-Backed Securities Index
Fee Paid by TIP to This Manager
[GRAPH APPEARS HERE]
Fee = 20 + [ .315 x ( Excess Return - 70 ) ] subject to
Floor of 10 bp; Cap of 85 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
A-20
<PAGE>
State Street Global Advisors Money Manager for the TIFF
US Equity Index Fund
Organization
2 International Place
Boston, Massachusetts 02110
phone: 617-664-4738
fax: 617-664-4338
Bank
Controlled by State Street Corporation
Founded in 1978
Total Assets under Management: $720 bil (12/31/99)
Representative Clients
American Red Cross
The Goodyear Tire and Rubber Company
University of Florida
Virginia Retirement System
The World Bank
Personnel
Key TIP Account Managers
Anne B. Eisenberg, Principal and Head of US Equity
Team
MBA, Boston University; BA, Tufts
1982-present: State Street Global Advisors
Karl Schneider, Principal
BS, Babson College
1996-present: State Street Global Advisors
Investment Philosophy
Philosophy: Wilshire 5000 Index
Assets (Passive US Stock Strategy): $213.5 bil (12/31/99)
Account Type: Separate Account
Investment Approach
SSGA replicates the return of the benchmark by holding a representative sample
of the index constituents. Tracking error is controlled by optimizing
transaction costs through use of external crossing networks and low-cost stock
index futures. Tracking error is also controlled through use of stock index
futures to remain substantially fully invested at all times.
Manager's Benchmark
Wilshire 5000 Index
Fee Paid by TIP to This Manager
SSGA receives a monthly minimum fee that is the greater of [$4167] or the amount
calculated using the following assets based fee schedule:
0.07% on first $50 million
0.05% on next $50 million
0.03% on remainder (over $100 million)
A-21
<PAGE>
State Street Global Advisors Money Manager for the TIFF Government
Bond Index Fund
Organization
2 International Place
Boston, Massachusetts 02110
phone: 617-664-4738
fax: 617-664-4338
Bank
Controlled by State Street Corporation
Founded in 1978
Total Assets under Management: $720 bil (12/31/99)
Representative Clients
Maine State Retirement System
Public School Retirement System of Missouri
Pennsylvania Municipal Retirement Board
Personnel
Key TIP Account Managers
Vic Thompson, Principal and Head of Global Fixed
Income Team
BBA, Pacific Lutheran University
1988-present: State Street Global Advisors
Sue Bonfeld, Principal and Head of Fixed Income
MBA, Wharton
1993-present: State Street Global Advisors
John P. Kirby, Principal
BA, Boston College
1995-present: State Street Global Advisors
Investment Philosophy
Philosophy: Lehman Government 5+ Year Index
Assets (Passive Bond Strategy): $15.3 bil (12/31/99)
Account Type: Separate Account
Investment Approach
SSGA replicates the return of the benchmark by holding a representative sample
of the index constituents. SSGA matches the duration, sector weights,
optionality, and quality of the index and seeks to remain substantially fully
invested at all times.
Manager's Benchmark
Lehman Government 5+ Year Index
Fee Paid by TIP to This Manager
In year one and year two of the Fund, SSGA will receive a monthly minimum fee
that will be the greater of [$6,250] or the amount calculated using the
following asset based fee schedules:
Year One:
0.09% on first $50 million
0.07% on next $50 million
0.05% on remainder (over $100 million)
Year Two:
0.08% on first $50 million
0.06% on next $50 million
0.04% on remainder (over $100 million)
In year three of the Fund and for each year
thereafter, SSGA will receive a
monthly minimum fee that will be the greater of ($8333)
or the amount calculated using the following
asset based fee schedule:
0.06% on first $50 million
0.04% on next $50 million
0.03% on remainder (over $100 million)
A-22
<PAGE>
Wellington Management Company, LLP Money Manager for the TIFF
Multi-Asset Fund
Organization
75 State Street
Boston, Massachusetts 02109
phone: 617-951-5000
fax: 617-263-4022
Independent Investment Counseling Firm
Controlled by Managing Partners: Laurie A. Gabriel,
Duncan M. McFarland, and John R. Ryan
Founded in 1928
Total Assets under Management: $236 bil (12/31/99)
Representative Clients
AT&T Investment Management Company
The Dow Chemical Company
Hartford Life Insurance Company
International Monetary Fund
Massachusetts Institute of Technology
SunAmerica, Inc.
The Vanguard Group
Personnel
Key TIP Account Managers
Ernst H. von Metzsch, Portfolio Manager
PhD, Harvard; MSC, University of Leiden
1973-present: Wellington Management Company, LLP
Karl E. Bandtel, Analyst
MS, University of Wisconsin
1990-present: Wellington Management Company, LLP
James Bevilacqua, Analyst
MBA, Stanford
1994-present: Wellington Management Company, LLP
Paul M. Mecray, III, Analyst
MBA, Wharton
1968-present: Wellington Management Company, LLP
Nilesh Undavia, Analyst
MBA, Dartmouth
1993-present: Wellington Management Company, LLP
Kim Williams, Analyst
MSC, University of London
1986-present: Wellington Management Company, LLP
Investment Philosophy
Philosophy: Natural Resource-Related Stocks
Assets Using This Philosophy: $1.4 bil (12/31/99)
Account Type: Separate Account
Investment Approach
Fundamental research is central to the investment process of Wellington
Management Company. The firm's proprietary research efforts allow for an
independent evaluation of market opportunities. The firm expects to outperform
the market over time primarily through superior bottom-up security selection.
Value added decisions are typically accomplished through analysis of the quality
of companies' assets and internal reinvestment opportunities, combined with the
analysis of how companies formulate their investment plans and react to changes
in the environment. Wellington's research-oriented approach to the natural
resource sector specifically draws upon investment professionals who are highly
specialized. The companies in which the firm invests vary widely with respect
to factors such as leverage, growth, yield, and risk. Companies within the
natural resource-related industries are subject to long cycles, the length of
which are determined by industry factors (the petroleum industry), and general
economic conditions (metals producers). These industries also have cycles which
are generally self-correcting; consequently, the best prospective returns are
typically in currently out-of-favor securities. Identifying quality management
teams is crucial to determining which firm can capitalize on opportunities for
increased shareholder value.
Manager's Benchmark
75% Energy sector of MSCI World Index
20% Metals and Mining sector of MSCI World Index
5% Forest Products and Paper sector of MSCI World
Index
Fee Paid by TIP to This Manager
0.45% on first $50 million
0.40% on next $50 million
0.35% on remainder (over $100 million)
A-23
<PAGE>
Westport Asset Management, Inc. Money Manager for the TIFF US Equity Fund
Organization
253 Riverside Avenue
Westport, CT 06880
phone: 203-227-3601
fax: 203-226-6306
Independent Investment Counsel
Controlled by Andrew J. Knuth, Chairman; Ronald H.
Oliver, President
Founded in 1983
Total Assets under Management: $2.5 bil (12/31/99)
Representative Clients
American Red Cross
Army & Air Force Exchange Service Trust
Danbury Hospital Endowment
Harvard University
McGraw-Hill Master Trust
Rockefeller Brothers Fund
Yale University
Personnel
Key TIP Account Managers
Andrew J. Knuth, CFA, Chairman
MBA, New York University; BA, Dickinson
1983-present: Westport Asset Management
previous experience: Lazard Freres & Co., Founder,
Institutional Equity Group
Ronald H. Oliver, President
BS, San Jose State University
1981-present: Westport Asset Management
previous experience: Starwood Corporation, President
Other Personnel
Albert H. Cohn
BS, Northwestern University
previous experience: David J. Greene & Co., Sr. Partner, Portfolio Manager
Paine Webber, Portfolio Manager
Edmund H. Nicklin, Jr.
PhD/MS/BS, Rensselaer Polytechnic Institute
previous experience:Evergreen Growth & Income Fund, Portfolio Manager
Alex Brown. & Sons, Inc., Analyst
Investment Philosophy
Philosophy: Small Cap Value
Assets Using This Philosophy: $2.5 bil (12/31/99)
Account Type: Separate Account
Investment Approach
Westport Asset Management emphasizes "small cap" low price/earnings stocks. The
firm seeks to generate superior investment returns without assuming the risks
generally associated with an "aggressive management" style. The firm believes
stock selection and adherence to relative valuation analysis are the principal
factors in superior long-term performance. Its investment approach seeks to
identify companies whose future earnings, cash flow, or return on equity are
expected to improve materially. To be considered as investments, the firm must
see compelling evidence that a stock can appreciate a minimum of 50% over a 18-
to 24-month period. These stocks must sell at or below market valuations or
below valuations of peer groups. The firm's portfolios emphasize but are not
limited to companies with capitalizations under $1.75 billion. Westport works
to achieve 5% positions on each of its core holdings, however, it will exceed
that percentage if a company's fundamental outlook is sufficiently attractive.
Portfolios contain an average of 20 to 50 stocks depending on the asset size of
the portfolio. Annual turnover averages less than 20%.
Manager's Benchmark
Russell 2000 Stock Index
Fee Paid by TIP to This Manager
[GRAPH APPEARS HERE]
Fee = 25 + [ .250 x ( Excess Return - 100 ) ] subject to
Floor of 15 bp; Cap of 200 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
A-24
<PAGE>
Appendix B
Service Provider Profiles
<PAGE>
Investors Capital Services, Inc. Fund Administrator for the
TIFF Investment Program
Organization
600 Fifth Avenue, 26th Floor
New York, NY 10020
phone: 212-332-5211
fax: 212-332-5190
Mutual Fund Administrator
Founded in 1992
Clients Served
FFTW Funds, Inc.
Sponsored by Fischer Francis Trees & Watts, Inc.
Hyperion Funds, Inc.
Sponsored by Hyperion Capital Management
TIFF Investment Program, Inc.
Sponsored by Foundation Advisers, Inc.
Key Personnel
William E. Vastardis, Managing Director
BS, Villanova University
previous experience: Vice President and head of Private Label Administration
Group, The Vanguard Group
Description of Services
Investors Capital Services, Inc. ("Investors Capital"), formerly AMT Capital
Services, Inc. prior to its acquisition by Investors Financial Services, Inc. in
May 1998, is a leading mutual fund administration company which provides third-
party fund administration services to a select group of institutional investment
management firms. Investors Capital and Investors Bank & Trust Company, TIP's
custodian, transfer agent, and fund accounting agent, are affiliates of each
other in that they are both owned by Investors Financial Services, Inc.
As fund administrator, Investors Capital is responsible for supervising all
elements of the day-to-day operations of TIP, including oversight of TIP's other
service providers with the exception of TIP's investment adviser and money
managers. Investors Capital seeks to lower TIP's administrative cost structure
through its application of technology, experience in managing complex operations
in the mutual fund industry, and economies of scale of working with more than
one fund group.
Investors Capital currently has approximately $6.0 billion in assets under
administration in mutual funds, limited partnerships, and offshore funds.
B-1
<PAGE>
Investors Bank & Trust Company Custodian and Transfer Agent
for the TIFF Investment Program
Organization
200 Clarendon Street
Boston, MA 02116
phone: 617-330-6700
fax: 617-330-6033
Providing securities processing services since 1962. Additional offices in
Dublin, Toronto, and the Cayman Islands.
Services
Global Custody Offshore Administration
Master/Feeder Processing Cash Management
Fund Administration Transfer Agency
Hub & Spoke Processing Foreign Exchange
Limited Partnership Securities Lending
Processing Multi-Currency Fund
Accounting
Dimensions
$265 billion in Custody Assets
1675 Daily Priced Funds
245 Offshore Funds
50 Unit Investment Trusts
Global Network in 92 Countries
1,500 Employees
Custodial or
Transfer Agency Clients
Aetna Retirement Services ICMA Retirement Corporation
Albion/Alliance Capital Indocam
Allmerica Financial John Hancock Funds
Allstate Life Kayne Anderson
Anchor Lazard
Atlas Funds M Financial Group
Bailard Beihl & Kaiser Mass Mutual Life Insurance
Banco Santander/Vega Asset Mgmt Merrill Lynch
Bank Julius Baer MetaMarkets.Com
Bankers Trust Mexico
Barclays Global Investors Northeast Investors
Brandes Investment Partners PaineWebber Incorporated
Chase PIMCO
Christian Science Republic National Bank
The Clinton Group of New York
Commonfund Salomon Smith Barney
The Copeland Companies Schwendiman
COVA Life Seix Investment Management
David L. Babson & Co., Inc. Shott Capital Management
Deutsche Bank Smith Breeden Associates
Diversified Investment Standard Life, U.K.
Advisers (AEGON) Standish Ayer & Wood
Domini State Farm Investment Management
Eaton Vance Corp. Strong Capital Management
Ebrd The Investment Fund for
E*Trade Foundations
Eyres Reed Thomas J. Herzfeld & Co. Inc.
Federated Investors Touchstone Family of Funds
Fiduciary Trust Trust Company of the West
Fischer Francis Trees & Watts Unicredito/Europlus
Goldman Sachs Asset Management Wells Fargo Bank
Grantham, Mayo, Van Otterloo & Co. Western Reserve Life
Guinness Flight Investment Assurance Co.
Management Ltd. William Blair & Co.
Harding Loevner Wright Investors Services
X.Com
Service Approach
Investors Bank focuses its resources on developing the people, systems, and
technology to support the ever-changing financial services industry. The Bank
is committed to tailored, responsive service built on a conscious strategy of
employing professional personnel at all levels and supporting them with
extensive training and sophisticated technology. The Bank's structure is
designed to facilitate quick, accurate responses by expert professionals who are
dedicated to individual clients.
In order to provide clients with the best service at a competitive price,
Investors Bank relies on fully integrated, state-of-the-art systems. For
example, the high level of automation with the Investors Bank Fund Accounting
and Custody Tracking System (FACTS) has elevated the typical fund accountant's
role away from mundane tasks like data entry to more analytical and control-
oriented tasks. The benefits to clients are increased control, improved
accuracy, and ultimately superior service.
Investors Bank's client base is global in scope and includes some of the most
recognized institutions in the business. Responsiveness and attention to detail
are the foundation for the long-term partnerships between the Bank and its
clients.
The Transfer Agency operations of Investors Bank focus on the institutional
investor. Highly trained shareholder servicing personnel are dedicated to each
client and become intimately familiar with that client's products. The result
is a satisfied investor whose inquiries are addressed by a shareholder
representative who knows both the investor's account history and the product
options available.
Key Personnel
Kevin Sheehan, President & CEO
BA, University of Massachusetts
previous experience: Senior Vice President, Bank of New England
Michael Rogers, Executive Managing Director,
Custody/Fund Accounting
MBA, College of William and Mary
BA, Boston College
previous experience: Manager, Bank of New England
Robert Mancuso, Marketing/Client Management
MBA, Boston College
BA, Finance, Boston College
B-2
<PAGE>
First Fund Distributors, Inc. Fund Distributor for the
TIFF Investment Program
Organization
4455 E. Camelback Rd, Suite 261E
Phoenix, AZ 85018
phone: 602-952-1100
fax: 602-952-8520
Fund Distributor
Founded in 1990
Subsidiary of The Wadsworth Group
Founded in 1982
Clients Served
Advisors Series Trust
Brandes Investment Funds
Fleming Capital Mutual Fund Group, Inc.
Fremont Mutual Funds, Inc.
Guiness Flight Investment Funds
Jurika & Voyles Fund Group
Kayne Anderson Mutual Funds
Masters' Select Investment Trust
O'Shaughnessy Funds, Inc.
PIC Investment Trust
Professionally Managed Portfolios
Puget Sound Alternative Investment Series Trust
The Purisima Funds
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group, Inc.
Key Personnel
Robert H. Wadsworth, President & Treasurer
MBA, Pace University; BA Princeton University
1982-present: The Wadsworth Group (founder)
1979-82: Prudential Securities, Inc.
1965-79: Calvin Bullock, Ltd.
Steven J. Paggioli, Vice President & Secretary
JD BA, University of Connecticut
1986-present: The Wadsworth Group
previous experience: J&W Seligman & Co.;
Staff Attorney, Securities & Exchange Commission
Eric M. Banhazl, Vice President
MBA, Tulane University; BA University of
Massachusetts
1990-present: The Wadsworth Group
1988-90: Huntington Advisors, Inc.
1986-88: L.F. Rothschild Fund Management, Inc.
1982-86: Price Waterhouse
Description of Services
First Fund Distributors, Inc. ("FFDI") is a broker-dealer registered with the
Securities & Exchange Commission and is authorized by the National Association
of Securities Dealers to act as a mutual fund underwriter and distributor. FFDI
serves as distributor for over 80 mutual fund portfolios with assets over $70
billion. It has approximately 15 employees in offices located in New York, New
Jersey, and Arizona.
B-3
<PAGE>
TIFF INVESTMENT PROGRAM
TIFF Investment Program, Inc. is a no-load, open-end management investment
company that seeks to improve the net investment returns of its members by
making available to them a series of commingled investment vehicles, each with
its own investment objective and policies. The funds are open exclusively to
foundations and other 501(c)(3) organizations.
<TABLE>
<CAPTION>
Advisor..............................Foundation Advisers, Inc...................2405 Ivy Road; Charlottesville, VA 22903
Fund Administrator...................Investors Capital Services, Inc............600 Fifth Avenue, 26th Floor; New York, NY 10020
Custodian and Transfer Agent.........Investors Bank & Trust Company.............200 Clarendon Street; Boston, MA 02116
Fund Distributor.....................First Fund Distributors, Inc...............4455 E. Camelback Rd., Suite 261E; Phoenix, AZ 85018
Independent Accountant...............PricewaterhouseCoopers LLP.................1177 Avenue of the Americas; New York, NY 10036
Legal Counsel........................Dechert Price & Rhoads.....................1500 K Street, NW; Washington, DC 20005
<S> <C> <C> <C> <C> <C> <C> <C>
TIFF TIFF TIFF TIFF TIFF TIFF TIFF
Multi- Intl Emerging US US Equity TIFF Govt Bond Short-
Asset Equity Markets Equity Index Bond Index Term
Fund Fund Fund Fund Fund Fund Fund Fund
Aronson + Partners.........................X..................................................................................
Atlantic Asset Management, LLC......................................................................X.........................
Canyon Capital Management, LP..............X..................................................................................
City of London Investment Co., Ltd................................X...........................................................
Delaware International Advisers Ltd...................X.......................................................................
Emerging Markets Management, LLC..................................X...........................................................
Everest Capital Limited...............................X...........X...........................................................
Explorador Capital Management, LLC................................X...........................................................
Farallon Capital Management, LLC...........X..................................................................................
Fischer Francis Trees & Watts, Inc........................................................................................X...
Harding, Loevner Management, LP............X..........X.......................................................................
Lazard Asset Management..........................................X............................................................
Lone Pine Capital LLC......................X..................................................................................
Marathon Asset Management, Ltd........................X.......................................................................
Martingale Asset Management, LP...............................................X...............................................
Oechsle International Advisors, LLC........X..........X.......................................................................
Palo Alto Investors...........................................................X...............................................
Seix Investment Advisors, Inc..............X........................................................X.........................
Shapiro Capital Management Company, Inc.......................................X...............................................
Smith Breeden Associates, Inc. .....................................................................X.........................
State Street Global Advisors............................................................X....................X................
Wellington Management Company, LLP.........X..................................................................................
Westport Asset Management, Inc. ..............................................................................................
</TABLE>
The TIFF Inflation-Linked Bond Fund is managed internally by the Advisor,
Foundation Advisers, Inc. This prospectus sets forth concisely the information
about the funds that a prospective member should know before investing. This
prospectus should be read carefully and retained for future reference.
Additional information is contained in the Statement of Additional Information
dated July __, 2000, which has been filed with the Securities and Exchange
Commission and which can be obtained without charge by contacting FAI at the
address and telephone number listed on the previous page under the heading
Inquiries. The Statement of Additional Information is incorporated herein by
reference. Further information about the funds' investments is also available in
the TIP Annual and Semi-Annual Reports to members. The funds' Annual Report
contains a discussion of the market conditions and investment strategies that
significantly affected the funds' performance during the last fiscal year and is
available without charge by contacting FAI.
Information about the funds (including the prospectus and SAI) can be reviewed
and copied at the Securities and Exchange Commission's Public Reference Room in
Washington, DC (for information, call 1-202-942-8090). Reports and other
information about the funds are also available on the Commission's Internet site
at http://www.sec.gov, with copies of this information available upon payment of
------------------
a duplicating fee by writing the Public Reference Section of the Commission,
Washington, DC 20549-0102.
SEC File Number 811-8234
<PAGE>
Statement of
TIFF Additional
Investment Information
Program July __, 2000
<TABLE>
<S> <C>
TIFF Multi-Asset Fund Available through:
TIFF International Equity Fund Foundation Advisers, Inc.
TIFF Emerging Markets Fund 2405 Ivy Road
TIFF US Equity Fund Charlottesville, VA 22903
TIFF US Equity Index Fund phone: 804-817-8200
TIFF Bond Fund fax: 804-817-8231
TIFF Government Bond Index Fund
TIFF Inflation-Linked Bond Fund
TIFF Short-Term Fund
</TABLE>
TIFF Investment Program, Inc. ("TIP") is a no-load, non-diversified, open-end
management investment company that seeks to improve the net investment returns
of its shareholders by making available to them a series of investment vehicles,
each with its own investment objective and policies. The funds are available to
foundations and 501(c)(3) organizations. The funds and their investment
advisor, Foundation Advisers, Inc. ("FAI"), have been organized by a nationwide
network of private and community foundations. FAI is responsible for selecting
Money Managers for each fund and allocating fund assets among these Money
Managers, subject to the approval of TIP's board of directors.
This Statement of Additional Information is not a Prospectus and should be read
in conjunction with the TIP Prospectus dated July __, 2000 (the "Prospectus"),
which has been filed with the Securities and Exchange Commission ("SEC") and
which is incorporated herein by reference. The Prospectus can be obtained
without charge by writing or calling FAI at the address and telephone number
provided above.
The funds' audited Financial Statements, including the Financial Highlights, for
the period ended December 31, 1999, appearing in the Annual Report to
Shareholders and the report thereon of PricewaterhouseCoopers LLP, independent
auditors, appearing therein are incorporated by reference in this Statement of
Additional Information. The Annual Report to Shareholders will be delivered to
shareholders upon request.
<PAGE>
Contents
<TABLE>
<S> <C>
Organization of TIP............................................................ 3
Origin of TIP.................................................................. 3
Suitability of TIFF Funds...................................................... 3
Supplemental Discussion of Fund Management and Administration.................. 8
Performance-Based Fees for Money Managers...................................... 13
Control Persons and Principal Holders of Securities............................ 17
Distribution of TIFF Funds..................................................... 18
Supplemental Discussion of Investment Objectives, Policies, and Restrictions... 19
Policy Implementation and Risks................................................ 22
Fund Transactions.............................................................. 43
Tax Considerations............................................................. 44
Member Information............................................................. 49
Calculation of Performance Data................................................ 49
Determination of Net Asset Value............................................... 50
Additional Service Providers................................................... 51
Financial Statements........................................................... 52
Description of Indices................................................... Appendix A
Quality Ratings.......................................................... Appendix B
</TABLE>
<PAGE>
Organization of TIP
The TIFF Investment Program, Inc. (TIP) was incorporated under Maryland law on
December 23, 1993. The authorized capital stock of TIP consists of
5,500,000,000 shares with $.001 par value, allocated in increments of
500,000,000 shares to each of the Multi-Asset, International Equity, Emerging
Markets, US Equity, US Equity Index, Bond, Government Bond Index, Inflation-
Linked Bond and Short-Term Funds (1,000,000,000 unallocated). Shares of each
fund have equal voting rights. Members have one vote for each dollar of net
asset value they hold. All shares issued and outstanding are fully paid and
non-assessable, transferable, and redeemable at net asset value at the option of
the member. Shares have no preemptive or conversion rights.
The shares of TIP possess non-cumulative voting rights. This means that the
holders of more than 50% of the shares voting for the election of directors can
elect 100% of the directors if they choose to do so. In such event, the holders
of the remaining percentage (less than 50%) of shares voting for the election of
directors will not be able to elect any person or persons to the board of
directors.
TIP's Articles of Incorporation permit new series of shares evidencing new funds
in addition to the nine funds described in the Prospectus.
None of the funds shall be liable for the obligations of any other fund.
Origin of TIP
Resources Needed to Invest Effectively. TIP is the outgrowth of several years
of research into the need for a foundation investment cooperative, including
extensive studies on foundation investment practices by The Investment Fund for
Foundations ("TIFF"). These studies suggest that many of America's
approximately 34,000 private and community foundations lack the resources needed
to earn superior net investment returns. The necessary resources include:
1. an asset base sufficient to diversify across asset classes and investment
styles in an economic manner,
2. staff and trustees with the time and expertise needed to select outstanding
Money Managers and monitor and adjust manager and asset class weights, and
3. the bargaining power and skills needed to strike attractive fee arrangements
with money managers, custodians, accountants, lawyers, and other service
providers.
Investing through TIP enables governing boards to delegate responsibility for
time-intensive tasks (e.g., service provider selection and evaluation and fee
negotiations), thus providing them with more time to devote to the sensitive and
supremely important task of formulating appropriate asset allocation guidelines.
Suitability of TIFF Funds
Manager Selection. The Money Managers selected by FAI on behalf of TIP are all
experienced investment professionals with verifiable performance records that
FAI's directors have reviewed. These directors (and the FAI staff that supports
them) have extensive experience performing their assigned functions, as do the
principals and supporting staff of all outside service providers employed by
TIP.
<PAGE>
Suitability of TIFF Funds continued
Changing Existing Investment Management Arrangements. Changing investment
management practices is almost always costly. It can also be painfully time-
consuming, especially when long-standing relationships must be disrupted. For
these reasons, change for its own sake should be avoided. At the same time,
foundation fiduciaries should recognize that investment markets and the vast
universe of service providers that furnish investment-related services to
foundations are highly dynamic. They are so dynamic that the uncertain but very
real costs of not changing settled practices sometimes can exceed the known
costs of steering a different course. This is especially true with respect to
the difficult and time-consuming task of selecting superior money managers. Due
to the very powerful mean-reverting tendencies of investment markets -- the
tendency for the performance of a manager (or investment style) generating
superior returns over a given time period to regress to the mean or average of
all managers over future time periods -- sticking with a proven winner can,
paradoxically, be very perilous unless the successful organization is itself
committed to the task of continually reviewing and revising its own working
assumptions, strategies, and tactics.
One of the chief reasons TIP was created was to permit foundation trustees, who
often lack the time or expertise to monitor continually the rapid evolution of
markets and managers, to delegate this task to a group of investment
professionals (the directors of TIP and FAI) who have significant experience
investing foundation assets.
Active vs. Passive Investment Approaches. While conceding that few professional
money managers can accurately and consistently forecast major highs or lows in
financial markets, the directors of TIP and FAI believe that some money managers
are indeed able to pursue superior returns within selected asset classes and
investment sectors. By combining in a prudent manner investment approaches
appropriate to a given asset class, and then selecting money managers based on
their proven ability to implement successfully such approaches, a foundation
potentially can enhance its long-term investment returns.
At the same time, TIP and FAI offer their members the benefits of passive
investing via the US Equity Index, Government Bond Index, and Inflation-Linked
Bond Funds. Passively managed funds (also known as index funds) attempt to
match as closely as possible the performance of their target markets. They
offer wide exposure to the underlying markets and typically have lower costs
than actively managed funds because they do not engage in fundamental and
economic research and keep trading activity, and thus transaction costs, to a
minimum. Some members may consider passive exposure to a given market more
appropriate than active exposure or may wish to combine active and passive
approaches.
Multi-Asset Fund. The TIFF Multi-Asset Fund is TIP's response to requests from
many foundations throughout the United States for assistance with asset
allocation. Asset allocation is critically important because the longer money
is put to work the wider the gap grows between returns on individual asset
classes. For truly long-term investors, these differences between asset class
returns dwarf differences in returns attributable to manager selection, fee
negotiations, or other investment-related tasks that TIP performs on behalf of
its members. All of the funds enable members to delegate to TIP responsibility
for the time-intensive tasks of selecting and monitoring money managers and
other service providers. The Multi-Asset Fund goes beyond this by providing
governing boards with an opportunity also to delegate to TIP responsibility for
determining which asset classes to hold and in what proportions to hold them.
Consistent with its view that strategic and tactical (as distinct from policy)
decisions are best made by full-time investment professionals, TIP in turn
delegates responsibility for strategic and tactical shifting of the Multi-Asset
Fund's invested capital to the Fund's Money Managers.
Return Objective that Reflects Foundations' Spending Rates. The Multi-Asset
Fund's return objective is to provide a solution to the principal investment
problem confronting most grantmaking foundations: how to preserve the purchasing
power of their endowments while simultaneously distributing about five percent
of their assets annually. Congress decided, in 1969, to compel private
foundations to distribute annually at least five percent of their assets.
However, studies of capital market history show that the goal of preserving fund
purchasing power while simultaneously withdrawing five percent per annum is
ambitious indeed. For example, to earn a five percent real return over the time
period 1926-1993, a foundation investing solely in domestic stocks and bonds on
a buy-and-hold
<PAGE>
Suitability of TIFF Funds continued
basis would have had to maintain at least an 80% commitment to stocks.
Foundations that distribute more than five percent of their assets annually must
recognize that even highly aggressive investment programs are unlikely to
produce real (inflation-adjusted) returns sufficient to maintain fund purchasing
power in the face of such high withdrawal rates, unless new gifts flow into the
Fund.
Based on their own study of capital market history, TIP's directors have
concluded that the achievement of five percent or higher real returns
presupposes a willingness to invest in risky (i.e., volatile) assets. The TIFF
Multi-Asset Fund's return objective is to produce an adequate (i.e., five
percent or higher) real return for participating foundations in as consistent a
manner as possible -- not every quarter or even every year, given the volatile
nature of capital markets, but with sufficient consistency over multi-year time
periods to induce member foundations to "stay the course." That is, foundations
should adhere to asset allocation policies that comport better with their long-
term goal of preserving fund purchasing power than do policies that place more
emphasis on controlling short-term price fluctuations.
Difficulty of Maintaining All-Equity Portfolios. TIP's directors recognized
that an all-equity portfolio would not fulfill the asset allocation needs of
grantmaking foundations in at least two important respects. First, many
governing boards cannot withstand the downside risks inherent in all-equity
portfolios, even those that are invested on a truly global basis. Second, even
if trustees have the discipline needed to maintain all-equity portfolios during
periods when stock prices are falling sharply, spending needs may leave them
with no choice but to sell equities at very depressed prices. For these
reasons, TIP's directors elected to include in the Fund's asset mix securities
that have the potential to cushion price declines in economic environments that
are especially inhospitable to equities, i.e., deflation or very high rates of
unanticipated inflation. These securities are held primarily in the "volatility
control" segment of the Fund and include resource-related equities, bonds, and
cash equivalents. It is important to note that securities held in the
volatility control segment of the Fund can themselves be quite volatile: the
term "volatility control" denotes such securities' potential to cushion losses
experienced in the "total return" segment of the Fund.
Unique Deflation-Hedging Role of Bonds. The Fund's 20% "normal" allocation to
bonds reflects the directors' judgment that such bond holdings could prove
uniquely useful in a deflationary environment like the 1930s when trustees would
otherwise be forced to sell stocks at depressed prices to meet annual spending
needs. To provide adequate deflation-hedging protection, a bond portfolio must
emphasize intermediate or longer maturity, high quality, non-callable bonds --
an imperative that is reflected in the benchmarks against which the Fund's bond
commitments will be measured.
The Need for a Hedge against High Rates of Unanticipated Inflation. Similarly,
the Fund's 5% "normal" allocation to a portfolio emphasizing natural resource-
related equities reflects the directors' judgment that such stock holdings could
prove uniquely useful in a highly inflationary environment like the 1970s when
many stocks outside the resource-related sector produced sharply negative
inflation-adjusted returns. There is no assurance that the resource-related
portfolio will produce satisfactory real returns in an environment of rapidly
rising inflation, but TIP's directors believe that it has the potential to serve
as a more reliable hedge than alternate inflation hedges that regulated
investment companies are permitted to own (e.g., shares of real estate
investment trusts).
The Fund does not hold direct investments in real estate because SEC regulations
prohibit regulated investment companies from doing so. While the Fund does not
hold real estate-related equities [e.g., shares of publicly traded real estate
investment trusts ("REITs")] on a permanent basis, the guidelines set forth for
several of the Fund's Money Managers permit them to hold such securities on an
opportunistic basis. TIP's directors rejected a permanent allocation to real
estate-related equities such as REIT shares because the directors believe that
returns on such securities have a disturbingly high correlation with stock
market indices when inflation is spiraling upward, i.e., they provide unreliable
inflation-hedging protection. Although there is no assurance that the natural
resource-related securities in which the Fund invests will produce satisfactory
real returns in environments of unexpectedly high inflation, TIP's directors
believe that such securities constitute more reliable inflation hedges than real
estate-related equities. The directors' experience suggests that firms engaged
in producing or distributing natural resources can more readily pass through
inflation-induced cost increases to their customers than can landlords who must
wait for
<PAGE>
Suitability of TIFF funds continued
leases to expire to negotiate price increases. This constraint also undermines
the inflation-hedging protection of direct real estate investments, which
several institutional funds represented on TIP's and FAI's boards hold but which
are not necessarily expected to provide high real returns when inflation is high
and accelerating.
Potential Value-Added from Active Management. In determining which asset
classes and strategies the Fund should employ for total return -- as distinct
from hedging -- purposes, TIP's directors sought to avoid a mistake common to
many investment programs. That is, in allocating assets among asset classes,
many investors use expected returns, which assume that all assets will be
managed passively (i.e., indexed), even though they themselves intend to rely
heavily on active managers. Mindful that certain TIFF mutual funds employ
primarily active management techniques, TIP's directors considered carefully the
extent to which active managers could potentially add value (net of fees) to
each asset class that the Multi-Asset Fund might hold. The Multi-Asset Fund
itself relies on active managers, which is the chief reason that the Multi-Asset
Fund's guidelines emphasize:
1. foreign (and especially emerging) stock markets to a greater extent than do
the guidelines employed by most US-based institutions at present and
2. opportunistic total return strategies such as global risk arbitrage and
distressed securities investing.
Perceived Inefficiency of Foreign Stock Markets. TIP's directors believe that
foreign stock markets are less efficient than the US stock market in a valuation
sense and are likely to remain so for some time. This perception creates a
presumption on their part that carefully selected active managers can produce
higher excess returns investing in foreign stocks than they can when investing
in US stocks. The assumption that active management will produce higher excess
returns (net of fees and trading costs) in foreign markets justifies a heavier
commitment to foreign stocks than the modest allocations maintained by many US-
based investors.
Potential Risk Reduction from Investing in Assets with Low Return Correlations.
The chief reason TIP's directors endorse the use of "non-traditional" or
"alternative"assets such as foreign stocks and opportunistic total return
portfolios is their perceived potential for attractive returns through active
management. The case for including these allocations is reinforced by the
tendency of returns on these non-traditional investments to be imperfectly (or,
in some cases, negatively) correlated with returns on domestic stocks.
Occasions can arise when foreign stocks (whether developed or emerging), global
risk arbitrage portfolios, distressed securities, and other investments that the
Fund might hold strictly for total return purposes, will join domestic stocks in
producing negative returns. However, this unfortunate fact does not undermine
the fundamental soundness of a diversified approach to long-term asset
allocation. As long as investments held by the Fund as domestic equity
substitutes generate long-term returns at least equal to those expected from
domestic stocks, the general tendency of such investments to rise and fall at
different times than domestic stocks creates opportunities to enhance the Fund's
long-term returns. This may be achieved through periodic rebalancing of the
Fund's asset class weights back to more normal percentages. The supposition
here is that market movements will periodically cause such weights to differ
from whatever initial "norms" TIP's directors might establish. Through a
combination of manager-induced and board-induced rebalancing moves, the Fund can
potentially benefit from the inherent volatility of the assets and strategies it
employs. As perhaps the most comprehensive study of this phenomenon concludes,
"disciplined rebalancing can boost returns as much as a fairly large shift in
the policy mix itself" (Arnott and Lovell, 1992).
Determining Asset Class Ranges. The Multi-Asset Fund's asset class ranges were
arrived at using a combination of resources, including computer simulations
quantifying the damage to long-term returns of forced sales of stocks at
depressed prices under the "disaster" scenarios described above (deflation and
very high rates of unanticipated inflation), as well as other qualitatively
driven analyses of the risk tolerance of foundation governing boards and their
capacity to reduce budgeted grant outlays (consistent with legally mandated
payout requirements) during periods when common stock prices are falling
sharply. While appreciative of the advantages of purely statistical approaches
to asset allocation, TIP's directors recognize that such approaches can and
often do attempt to achieve a false precision. The Fund's asset allocation
guidelines therefore reflect qualitative as well as quantitative judgments about
asset class weights best suited to the long-term needs of foundations.
<PAGE>
Suitability of TIFF Funds continued
Statistical Justification of Fund's Guidelines. TIP and FAI do not provide such
statistics for several reasons. First, even very long-term studies of the risk
and return characteristics of asset classes and investment strategies are highly
sensitive to starting and ending dates. An attempt to depict how a hypothetical
portfolio managed in accordance with the Fund's guidelines would have performed
over time could prove misleading.
Second, some of the asset classes and strategies that the Fund employs have
relatively short histories (e.g., emerging market stocks, for which reliable
return series extend back less than a decade at present). This compounds the
problem of time-period sensitivity just mentioned, especially with respect to
that portion of the Fund allocated to opportunistic equity strategies, such as
global risk arbitrage, that seek to outperform absolute return benchmarks
(Treasury bills plus five percent).
Third, many governing boards seek TIP's assistance in formulating asset
allocation guidelines precisely because of their concern for lack of time and
expertise. Burdening such trustee groups with quantitative justifications of
the Fund's guidelines would contravene their stated wishes and could also
provide a false sense of security that the Fund will produce superior risk-
adjusted returns relative to more conventional asset mixes comprising only
domestic stocks and bonds. While the Fund has the potential to outperform other
asset mixes, there is no assurance that it will do so, and the Fund could
potentially underperform more conventional asset mixes in certain market
environments (e.g., when foreign stocks and bonds are performing materially
worse than their domestic equivalents). While TIP's decision to employ such
strategies bespeaks its directors' judgment that capital markets will continue
to provide opportunities for the Money Managers within such segments to generate
satisfactory absolute returns, there is no assurance that they will do so.
Prospective investors must not extrapolate past results into the future.
Fund's Suitability for Foundations with "Conservative" Boards. Whether the Fund
is suitable for a foundation that favors conservative investment policies
depends on one's definition of "conservative." Many investors who describe
themselves as "conservative" pursue strategies that in fact entail the risk of
large losses, especially to the ravages of inflation. Examples include:
1. investors willing to own only short-term Treasury bills, which provide safety
of principal but which have historically generated less than one-fifth of the
real returns needed to preserve the long-term purchasing power of funds with
withdrawal rates of five percent per annum,
2. investors willing to own only very high grade bonds, which provide safety of
principal if held to maturity but can produce large interim losses if
interest rates spike upward, and
3. investors willing to own only the highest quality (i.e., "safest") stocks,
such as IBM in 1987 ($175 per share versus less than $50 per share just five
years later) or Philip Morris in 1992 ($86 per share versus $49 per share
less than one year later).
When scrutinized, the investment policies of many so-called "conservative"
investors are in fact not conducive to wealth preservation -- certainly not
after adjusting for inflation. A more apt label for such policies would be
"conventional."
TIP's directors believe that the most relevant measure of conservatism for
foundation investors is not how closely their investment policies comport with
traditional norms but rather how effective such policies are in maintaining fund
purchasing power within acceptable volatility constraints. Diversifying among
many asset classes, strategies, and money managers can be a powerful means of
improving the return-to-risk ratio of an investment program. For this reason,
most of the institutional funds represented on the TIP and FAI boards make
extensive use of assets other than domestic stocks and bonds and strategies
other than conventional long-only approaches.
<PAGE>
Supplemental Discussion of Fund Management and Administration
TIP and FAI Boards. There is considerable, though not complete, overlap among
the boards of TIP and FAI for two reasons. First, given the highly dynamic
character of financial markets, it is important that decision-making at all
levels of the cooperative be as streamlined as possible. This imperative is
best fulfilled by keeping the number of individuals responsible for a given task
(e.g., selecting and monitoring Money Managers) to a reasonable minimum.
Second, there are securities law conditions which preclude complete overlap
between the boards of TIP and FAI. Specifically, to ensure that the cooperative
complies with laws discouraging direct control of the affairs of regulated
investment companies by the entities that sponsor them, FAI board members cannot
occupy more than 49% of the seats on TIP's board of directors. For this reason
and also because the duties of TIP's board presuppose extensive audit and
operations experience, a majority of TIP's board of directors are persons who
serve or have served on the Audit and Operations Committee of TIFF, the not-for-
profit organization that coordinated TIP's establishment. In contrast, most of
the members of FAI's board are persons who serve or have served on TIFF's
Investment Committee. FAI's board is chaired by Greg Curtis, President of
Greycourt & Company (Pittsburgh, PA). The following is a list of the directors
of TIP and FAI.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Directors Birthdate
<S> <C> <C>
Sheryl L. Johns TIP Chair 3/15/1956
William F. Nichols* TIP/FAI Director 7/4/1934
Fred B. Renwick TIP Director 2/1/1930
John E. Craig TIP Director 6/3/1944
Gregory D. Curtis FAI Chair 1/14/1947
Alice W. Handy FAI Director 4/17/1948
Robert A. Kasdin FAI Director 4/20/1958
William McLean FAI Director 4/22/1955
Jack R. Meyer FAI Director 10/4/1945
David A. Salem* TIP/FAI Director/President 4/27/1956
Ann B. Sloane FAI Director 11/1/1938
David F. Swensen FAI Director 1/26/1954
Jeffrey Tarrant FAI Director 4/4/1956
Arthur Williams III FAI Director 5/12/1941
</TABLE>
An asterisk (*) has been placed next to the name of each director who is an
"interested person" of TIP, as such term is defined in the Investment Company
Act of 1940, as amended (the "1940 Act"), by virtue of such person's affiliation
with TIP or FAI.
Director Compensation. Excepting the president, David Salem, the members of the
TIP and FAI boards are not compensated for their service as director.
Code of Ethics. Rule 17j-1 of the Investment Company Act of 1940, as amended,
addresses conflicts of interest that arise from personal trading activities of
investment company personnel. The rule requires TIP, their investment advisor,
FAI, and their Money Managers to adopt a code of ethics and to report
periodically to the board on issues raised under its code of ethics. To assure
compliance with these restrictions, TIP and FAI have adopted and agreed to be
governed by a joint code of ethics, and the Money Managers have each adopted and
agreed to be covered by their individual Code of Ethics (the "Codes of Ethics")
containing provisions reasonably necessary to prevent fraudulent, deceptive or
manipulative acts with regard to the personal securities transactions of their
employees. The Codes of Ethics permits personal investing transactions of
TIP's, FAI's and the Money Managers' directors, officers and employees which
avoid conflicts of interest with TIP.
Information about these Codes of Ethics may be obtained by calling the
SEC's Public Reference Room at 1-202-942-8090. Copies of the Codes of Ethics
may also be obtained on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. Alternatively, this information may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
SEC, Washington D.C. 20549-0102 or by electronic request at the following e-mail
address: [email protected].
<PAGE>
Supplemental Discussion of Fund Management continued
Advisory Agreement. Pursuant to its Advisory Agreement with TIP, FAI provides
the following services the funds:
1. develops the investment programs, selects the Money Managers from a broad
universe of investment managers, negotiates agreements with Money Managers on
behalf of the TIP board of directors (which has final authority
for the approval or disapproval of such agreements), allocates and
reallocates assets among Money Managers, and monitors the Money Managers'
investment activities and results;
2. provides or oversees the provision of all general management, investment
advisory, and portfolio management services;
3. provides TIP with office space, equipment, and personnel; and
4. passively manages the Inflation-Linked Bond Fund.
The Advisory Agreement was approved by the initial members of the International
Equity, Emerging Markets, US Equity, Bond, and Short-Term Funds on March 29,
1994, by the initial members of the Multi-Asset Fund on September 13, 1994 and
by the initial members of the US Equity Index, Government Bond Index and
Inflation-Linked Bond Funds on May 8, 2000. The Advisory Agreement continues in
force for successive annual periods as long as such continuance is specifically
approved at least annually by (a) the board of directors or (b) the vote of a
"majority" [as defined in the Investment Company Act of 1940 (the "1940 Act")]
of a fund's outstanding shares voting as a single class; provided that in either
event the continuance is also approved by at least a majority of the board of
directors of TIP who are not "interested persons" (as defined in the 1940 Act)
of TIP or FAI by vote cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be terminated without
penalty on not less than 60 days' notice by the board of directors of TIP or by
a vote of the holders of a majority of the relevant fund's outstanding shares
voting as a single class, or upon not less than 60 days' notice by FAI. The
Advisory Agreement will terminate automatically in the event of its "assignment"
(as defined in the 1940 Act).
Advisor Compensation. As compensation for services rendered by FAI under the
Advisory Agreement, each fund pays FAI a maximum monthly fee calculated by
applying the following annual percentage rates to such fund's average daily net
assets for the month:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Multi- International Emerging U.S Short-
Assets Asset Equity Markets Equity Bond Term
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
On first $500 million 0.20% 0.15% 0.15% 0.15% 0.10% 0.03%
On next $500 million 0.18% 0.13% 0.13% 0.13% 0.08% 0.03%
On next $500 million 0.15% 0.11% 0.11% 0.11% 0.06% 0.02%
On next $500 million 0.13% 0.09% 0.09% 0.09% 0.05% 0.02%
On next $500 million 0.11% 0.07% 0.07% 0.07% 0.04% 0.01%
On remainder (>$2.5 billion) 0.09% 0.05% 0.05% 0.05% 0.03% 0.01%
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
US Equity Government Inflation-Linked
Assets Index Bond Index Bond
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
All asset levels 0.03% 0.03% 0.15%
- -----------------------------------------------------------------------------------
</TABLE>
For the years ended December 31, 1999, December 31, 1998, and December 31, 1997,
the amount of advisory fees paid to FAI and the money managers by each fund* was
as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TIFF Multi-Asset Fund $ 885,415 $1,122,685 $1,423,180
- -------------------------------------------------------------------------------------------------------------
TIFF International Equity Fund $1,602,155 $1,147,078 $2,186,201
- -------------------------------------------------------------------------------------------------------------
TIFF Emerging Markets Fund $ 689,179 $1,636,075 $ 851,605
- -------------------------------------------------------------------------------------------------------------
TIFF US Equity Fund $1,546,753 $1,523,645 $1,136,192
- -------------------------------------------------------------------------------------------------------------
TIFF Bond Fund $ 447,625 $ 368.550 $ 496,344
- -------------------------------------------------------------------------------------------------------------
TIFF Short-Term Fund $ 173,602 $ 138,420 $ 66,835
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Because the US Equity Index, Government Bond Index, and Inflation-Linked Bond
Funds have not yet commenced operations, no advisory fees have been paid.
<PAGE>
Supplemental Discussion of Fund Management continued
Payment of FAI's Expenses. FAI pays all of its expenses arising from the
performance of its obligations under the Advisory Agreement, including all
executive salaries and expenses of the directors and officers of TIP who are
employees of FAI, and TIP's office rent. Subject to the expense reimbursement
provisions described in the Prospectus, other expenses incurred in the operation
of TIP are borne by the funds themselves, including, without limitation: Money
Manager fees; brokerage commissions; interest; fees and expenses of
administrators, independent attorneys, auditors, custodians, accounting agents,
and transfer agents; taxes; cost of stock certificates; expenses (including
clerical expenses) of issue, sale, repurchase, or redemption of shares; expenses
of registering and qualifying shares of TIP under federal and state laws and
regulations; expenses of printing and distributing reports, notices, and proxy
materials to existing members; expenses of printing and filing reports and other
documents filed with governmental agencies; expenses of annual and special
members' meetings; expenses of directors of TIP who are not employees of FAI;
membership dues in the Investment Company Institute; insurance premiums; and
extraordinary expenses such as litigation expenses. Fund expenses directly
attributable to a fund are charged to that fund; other expenses are allocated
proportionately among all of the funds in relation to the net assets of each
fund.
Fund Administrator. Consistent with their mission of helping foundations
exploit the economies of scale inherent in many aspects of investing, TIP and
FAI rely heavily on outside service providers to perform most functions that
their directors deem delegable, including what is known in the mutual fund
industry as "fund administration." A mutual fund's administrator oversees its
day-to-day operations, typically by performing certain tasks itself (e.g.,
preparing regulatory filings) while supervising closely the work of other
service providers employed by the fund (e.g., its custodian, transfer agent,
dividend disbursing agent, accountant, etc.). Because it specializes in such
work, Investors Capital Services, Inc. ("Investors Capital") can perform these
important functions better and at a lower cost than FAI.
Administration Agreement. As Administrator for the funds, Investors Capital
receives a monthly fee at an annual rate of: (a) 0.07% of the average daily net
assets of TIP for the first $300 million, (b) 0.05% for the next $2.7 billion,
(c) 0.04% for the next $2.0 billion, and (d) 0.03% over $5.0 billion of assets
under management. TIP also reimburses Investors Capital for certain costs. In
addition, TIP has agreed to pay Investors Capital an incentive fee not to exceed
0.02% of average daily net assets for reducing the expense ratio of one or more
funds below certain levels specified for such funds. A profile of Investors
Capital is provided in Appendix B of the Prospectus.
For the years ended December 31, 1999, December 31, 1998, and December 31, 1997,
the amount of administration fees paid by each fund* was as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TIFF Multi-Asset Fund $206,999 $332,577 $252,206
- -----------------------------------------------------------------------------------------------------------------------
TIFF International Equity Fund $142,251 $194,693 $133,200
- -----------------------------------------------------------------------------------------------------------------------
TIFF Emerging Markets Fund $ 36,790 $ 38,406 $ 48,710
- -----------------------------------------------------------------------------------------------------------------------
TIFF US Equity Fund $172,190 $161,064 $123,362
- -----------------------------------------------------------------------------------------------------------------------
TIFF Bond Fund $143,361 $104,422 $ 85,660
- -----------------------------------------------------------------------------------------------------------------------
TIFF Short-Term Fund $ 41,666 $ 33,045 $ 21,735
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Because the US Equity Index, Government Bond Index, and Inflation-Linked Bond
Funds have not yet commenced operations, no administration fees have been paid.
Money Manager Agreements. The agreements between TIP and the Money Managers
that manage a separate account on behalf of a fund (the "Money Manager
Agreements") continue in effect for successive annual periods, as long as such
continuance is specifically approved at least annually by (a) the board of
directors or (b) the vote of a "majority" (as defined in the 1940 Act) of a
fund's outstanding shares voting as a single class, provided that in either
event the continuance is also approved by at least a majority of the board of
directors who are not "interested persons" (as defined in the 1940 Act) of TIP
or FAI by vote cast in person at a meeting called for the purpose of voting on
such approval.
<PAGE>
Supplemental Discussion of Fund Management continued
Exemption from Requirement that Members Approve New Money Manager Agreements.
TIP has received an order from the SEC effective August 30, 1995, exempting each
of the funds from the requirement that agreements between regulated investment
companies and their investment advisors or subadvisors be approved by a vote of
a majority of the outstanding voting securities of such investment companies.
TIP's board of directors believes that such member approval of Money Manager
Agreements is not necessary for the protection of participating organizations
and would needlessly encumber the funds' operations. Pursuant to this
exemption, TIP's board of directors may, without the approval of members:
1. employ a new Money Manager pursuant to the terms of a new Money Manager
Agreement, either as a replacement for an existing Money Manager or as an
additional Money Manager,
2. change the terms of a Money Manager Agreement, or
3. continue to employ an existing Money Manager on the same terms where an
Agreement has been assigned because of a change in control of the Money
Manager.
Any such action would be followed by written notice to members, which must
include the information concerning the Money Manager that would normally be
included in a proxy statement.
In negotiating Money Manager fee agreements, FAI's staff analyzes a number of
variables, including:
1. the proposed size of a Manager's account,
2. the Manager's historical and expected future performance against relevant
benchmarks,
3. the historical and expected future volatility of the Manager's relative
returns,
4. the Manager's assets under management, and
5. the impact (if any) that linking a Manager's compensation to its performance
might have on its decisionmaking process.
Manager Allocation Criteria. In allocating assets among Money Managers, FAI
considers each fund's Investment and Performance Objectives as well as other
variables. To accommodate fluctuations in the relative sizes of Money Managers'
accounts caused solely by market movements, allocations formulated by FAI take
the form of ranges: minimum, normal, and maximum percentages of fund assets to
be allocated to each Money Manager retained by it. While these ranges are not
expected to change frequently, FAI has discretionary authority to alter these
ranges and to reallocate assets among Money Managers in response to changing
market conditions.
Activating Money Managers' Accounts. Not all Money Managers profiled in
Appendix A of the Prospectus are employed at all times. Whether a given Money
Manager is employed at a given time depends on:
1. a fund's size,
2. its projected growth rate,
3. FAI's perception of the relative attractiveness of the Money Manager's
approach in light of prevailing market conditions, and
4. the extent to which a given Money Manager's investment style would complement
those of the other Money Managers to which a fund's assets have been
allocated.
Future market conditions are unforecastable, and TIP cannot predict the amount
to be allocated to each Money Manager over time. As a general rule, however,
given the incremental custodial costs of activating a Money Manager's account,
it is expected that the initial allocation to each Money Manager managing a
separate account on a fund's behalf will be at least $5 million. A Money
Manager receives no compensation from TIP until it is actually managing funds
for TIP and is entitled to no compensation if, due to its own changed
circumstances or changes in the investment environment generally, FAI decides
not to allocate assets to it.
Foundations seeking to know the actual allocation of each fund's assets across
Money Managers at a given time can obtain this information by contacting FAI.
<PAGE>
Supplemental Discussion of Fund Management continued
Termination of Money Manager Agreements. The Money Manager Agreements may be
terminated without penalty on not less than 60 days' notice by the board of
directors of TIP or by a vote of the holders of a majority of the relevant
fund's outstanding shares voting as a single class, or upon not less than 60
days' notice by the Money Manager. A Money Manager Agreement will terminate
automatically in the event of its "assignment" (as defined in the 1940 Act).
Arms-Length Relationships between Money Managers and TIP. The Money Managers
have no affiliations or relationships with TIP or FAI other than as
discretionary investment managers for all or a portion of a fund's assets.
Target Expense Ratios. The target expense ratios for the TIFF funds are:
<TABLE>
<S> <C>
Multi-Asset Fund 0.95%
International Equity Fund 1.00%
Emerging Markets Fund 1.50%
US Equity Fund 0.65%
US Equity Index Fund 0.33%
Bond Fund 0.50%
Government Bond Index Fund 0.35%
Inflation-Linked Bond Fund 0.36%
Short-Term Fund 0.35%
</TABLE>
These target expense ratios reflect informed estimates by the directors of TIP
and FAI of the costs that foundations must be prepared to incur to realize the
performance objectives for each fund. For example, the Performance Objective of
the US Equity Fund is to outperform the Wilshire 5000 Stock Index by 1.25% per
annum net of fees. The Fund's target expense ratio is 0.65%. Accordingly, FAI
seeks to allocate the Fund's assets across the Money Managers employed by it
such that its expense ratio will approximate 0.65% when the Fund's assets
themselves generate an incremental return over the Wilshire 5000 Stock Index of
1.90% (i.e., the 0.65% in fees incurred in pursuit of the Fund's objective plus
the 1.25% margin by which the Fund seeks to outperform the Index, net of fees).
Because the fees each fund pays to its Money Managers are (in most cases) tied
to performance, it is possible that a fund which outperforms its benchmark by a
material margin could display an expense ratio which considerably exceeds its
target expense ratio. The target expense ratios are based on the assumption
that FAI will allocate assets among Money Managers in a manner that is sensitive
to the objective of keeping each fund's expense ratio at or below target, except
under circumstances where the fund outperforms its performance benchmark by a
margin greater than that reflected in its stated Performance Objective. Some
Money Managers have benchmarks different from the overall benchmark for the fund
employing them. Thus, it is possible that a fund's expense ratio in any given
time period could exceed the fund's target expense ratio even if the fund fails
to achieve its return objective. Further, the funds may invest in certain other
commingled investment vehicles, including other registered investment companies
and private investment funds and will bear their pro rata share of the fees and
expenses associated with any such investment. In this regard, it should be
noted that the fees charged by many private investment funds are high in
relation to the fees charged by other investment funds (performance fees for
private investment funds are often as high as 20% per annum of realized and
unrealized gains).
With respect to the funds that employ performance-based fees for Money Managers,
each fund's actual expense ratio could exceed its target expense ratio if the
performance of one or more Money Managers employed by it causes the average fees
paid to all of the fund's Money Managers to exceed the difference between (a)
its target expense ratio and (b) all fees and expenses paid by it other than
Money Manager fees. For example, the US Equity Fund's target expense ratio is
0.65% per annum. All fees and expenses other than Money Manager fees to be paid
by the US Equity Fund are not likely to exceed 0.32% per annum. In allocating
the Fund's assets among Money Managers, FAI will attempt to ensure that the
average fees paid by the Fund to its Money Managers only exceed
<PAGE>
0.33% per annum (i.e., its target expense ratio of 0.65% minus the 0.32% in
other expenses) if the Fund surpasses its performance objective. The US Equity
Fund's Performance Objective is to outperform the Wilshire 5000 Stock
Performance-Based Fees for Money Managers
Index by 1.25% per annum net of fees. If the condition just described is
fulfilled -- that the Fund's total expenses may exceed 0.65% only if it
surpasses its Performance Objective -- then its expense ratio should not exceed
0.65% unless its gross return exceeds the return produced by the Wilshire 5000
Stock index by at least 1.90% (1.25% net excess return goal plus 0.65% fees).
FAI's failure to achieve this goal over a one-year holding period or longer
would cause the Fund to fail to achieve its Performance Objective of
outperforming the Wilshire 5000 Stock Index by 1.25% per annum.
Overview. The following discussion outlines the principles that FAI follows in
negotiating Money Manager fees and describes the performance-based fee structure
that the funds have entered into with many (but not all) of their Money
Managers. These principles are the product of both the combined investment
experience of members of FAI's and TIP's boards and policy choices made by TIP's
board in its formulation of objectives and guidelines for each fund.
Optimizing versus Minimizing Expenses. Even modest differences in a fund's
annual investment-related costs can have profound effects on a foundation's
cumulative returns. Therefore, foundation trustees should consider carefully
the costs of alternative investment vehicles. By pooling the investment assets
of numerous foundations, TIP can and does seek to minimize members' expenses for
investment-related services as custody and portfolio accounting. With respect
to Money Manager fees, which typically constitute the lion's share of
investment-related expenses, the directors of TIP and FAI believe that a
strategy aimed at optimizing these outlays is potentially more profitable than a
strategy aimed merely at minimizing them. For this reason, TIP makes extensive
use of performance-based fees in compensating Money Managers for services
rendered to TIP.
Some foundation investors may be uncomfortable with the fact that the exact
costs of investing through each TIFF fund are unknowable in advance. However,
it should be remembered that the annual standard return deviations of the asset
classes in which the TIFF funds that utilize performance-based fees primarily
invest (i.e., the non-diversifiable or systemic risks of each asset class)
greatly exceed the economic uncertainty associated with fluctuating manager
fees. This is the case even under worst case conditions. Differences between
the minimum and maximum fees payable to Money Managers currently managing assets
for the funds are shown in the following table as of August 20, 2000.
<TABLE>
<CAPTION>
Number of Managers Largest Difference between Average Difference between
Receiving Minimum and Maximum Fees Minimum and Maximum Fees Payable
Performance-Based Payable to Any Money Manager to Any Money Manager
Fees
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TIFF Multi-Asset Fund 4 1.40% 0.80%
- ------------------------------------------------------------------------------------------------------------------------------------
TIFF International Equity Fund 3 1.45% 1.22%
- ------------------------------------------------------------------------------------------------------------------------------------
TIFF Emerging Markets Fund 1 2.60% 2.60%
- ------------------------------------------------------------------------------------------------------------------------------------
TIFF US Equity Fund 4 1.90% 1.23%
- ------------------------------------------------------------------------------------------------------------------------------------
TIFF US Equity Index Fund 0 NA NA
- ------------------------------------------------------------------------------------------------------------------------------------
TIFF Bond Fund 3 0.75% 0.65%
- ------------------------------------------------------------------------------------------------------------------------------------
TIFF Government Bond Index Fund 0 NA NA
- ------------------------------------------------------------------------------------------------------------------------------------
TIFF Inflation-Linked Bond Fund 0 NA NA
- ------------------------------------------------------------------------------------------------------------------------------------
TIFF Short-Term Fund 0 NA NA
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Reflects only fees payable to Money Managers that manage a
separate account on behalf of a fund. Averages assume equal manager
allocations.
Based on their considerable investment experience, the directors of TIP and FAI
believe that, over the long term, TIP's members are likely to realize a net
benefit for bearing the uncertainties associated with performance-based fees.
<PAGE>
Performance-Based Fees for Money Managers continued
Link between Funds' Objectives and Performance-Based Fee Structures. The
Performance Objective of each fund is to outperform a relevant market benchmark
by a modest increment, net of fees. FAI's aim in negotiating Money Manager fees
is to ensure that such fees are relatively low compared to institutional norms
when each Money Manager's performance is approximately equal to the level that
is required to enable the fund that employs it to achieve its Performance
Objective. A related aim is to tie manager compensation as closely as possible
to manager performance.
Money Manager Evaluation Criteria Seek to Discourage Undue Risk-Taking. TIP
does not employ performance-based fees as a means of inducing its Money Managers
to perform better than they would if they received straight asset-based fees.
Rather, it employs performance-based fees, among other means, in seeking to
optimize members' investment-related expenses. A Money Manager's proven
capacity to deliver uniform results to all accounts managed in accordance with
the philosophy presented to TIP is one of the important criteria used in
choosing Money Managers. FAI's initial selection criteria are the same used to
evaluate their ongoing performance. Portfolio investment decisions that cause
the performance of TIP's account to differ materially from the performance of
purportedly similar accounts, whether such decisions are motivated by the desire
to earn higher fees from TIP or not, could trigger their dismissal. FAI
compares the results each Money Manager produces for TIP to the results it
produces for its other clients. A Money Manager's unwillingness to share these
other results with FAI or its failure to manage TIP's account in a manner that
is as similar as possible to the manner in which other accounts with the same
mandate are managed also constitutes grounds for dismissal.
Preferred Performance-Based Fee Structure. FAI is mindful that no fee structure
can possibly prove suitable to all Money Managers, even as a starting point for
discussion. However, in an effort to streamline the negotiation process, FAI
has formulated a preferred performance-based fee model. The graph below
illustrates the application of this model to one particular Money Manager.
[CHART APPEARS HERE]
Common Characteristics. All Money Manager Agreements entailing performance-
based fees have certain common characteristics. These include (1) minimum fees
("floors"), (2) maximum fees ("caps"), and (3) fee formulas that, in the
judgment of members of TIP's and FAI's boards, produce reasonable fees in
relation to the margin of outperformance that a Money Manager must achieve to
earn a given level of fees.
In each case, the formula embodies the concept of a "fulcrum fee," i.e., a fee
midway between the minimum and the maximum. An equation is used under which the
actual fees paid to a Money Manager are always proportionately related to
performance above or below the fulcrum point. The formula is designed to
augment a mutually agreed-upon basic fee if the excess return (i.e., actual
gross total return less benchmark total return) on the Money Manager's portfolio
exceeds a specified level and to reduce this basic fee if the excess return
falls below this level. As the graph illustrates, in each case the slope of the
fee line between the floor and the cap is uniform throughout.
<PAGE>
Performance-Based Fees for Money Managers continued
Definition of Total Return. "Total Return" as used here means the change in the
market value of the Money Manager's portfolio, or the benchmark index, as the
case may be, over one month measurement periods, adjusted on a time-weighted
basis for any assets added to or withdrawn from the Money Manager's portfolio.
The total returns of portfolios or benchmark indices over the rolling 12-month
time periods used in computing performance-based bonuses/penalties are,
therefore, the product of compounding each of the monthly returns in the
applicable period.
Manager-Specific Benchmark Indices. The benchmark index used in computing the
Money Manager's excess return is the index deemed most relevant for that Money
Manager. In many cases, this benchmark index is the same as the overall
performance benchmark for the fund retaining the Money Manager. In some cases,
however, FAI's objective of melding Money Managers espousing different
philosophies into an integrated manager structure that is both effective and
efficient dictates that a Money Manager's benchmark index be different from the
fund benchmark.
Fee Function Tied to Fund's Overall Objective. The performance-based fee
structure permits FAI to craft manager-specific fee agreements that link
compensation to the return objectives of the fund in question. In crafting fee
proposals, FAI and the directors of TIP ask a number of questions, including
those discussed below. All answers are considered when evaluating fee
arrangements.
1. What is a reasonable fee for this Money Manager if it outperforms its
benchmark by the same margin that the fund employing it aims to outperform
its benchmark?
For example, the US Equity fund seeks to outperform its benchmark (the Wilshire
5000 Stock Index) by 125 basis points net of fees. If analysis of all relevant
factors (including, but not limited to, the proposed size of a Money Manager's
account, the Money Manager's historical deviations from the benchmark, the
volatility of such deviations, the Money Manager's assets under management, and
other organizational attributes) suggests that it is reasonable to pay Manager X
40 basis points for outperforming its benchmark by 125 basis points net of fees,
then FAI has defined one point on the fee line for Manager X: 165 basis points
of excess return equates to 40 basis points of fees.
2. What is a reasonable fee for a Money Manager if it performs as expected?
As a practical matter, most Money Managers screened by FAI expect to outperform
their agreed-upon benchmark by a margin greater than that reflected in the
targeted excess return of the fund they seek to serve. For example, most US
equity managers screened by FAI seek to outperform a relevant benchmark of US
equities by more than the 125 basis points by which the US Equity Fund seeks to
outperform its performance benchmark (the Wilshire 5000) net of all fees. The
Money Managers establish their fee-negotiating position with a view to what they
would expect to earn under a normal asset-based fee arrangement; they can be
expected to seek a performance-based fee schedule that will give them reasonable
assurance of payment comparable to their asset-based fee expectations.
Particularly where the Money Manager has an asset-based fee schedule in place
for other clients, FAI will begin negotiation on the premise that the Money
Manager should be paid an amount comparable to a reasonable asset-based fee if
the Money Manager performs in accordance with reasonable expectations.
3. What is the appropriate fulcrum point for a Money Manager?
The fulcrum point -- the midpoint between the maximum and minimum fees -- is set
to establish a fee structure in which the financial incentives of the Money
Manager are aligned with those of the Fund. The fulcrum point is set at a
performance level that the Money Manager can reasonably expect to achieve with
an investment approach that entails an acceptable level of risk for the Fund.
FAI and TIP seek agreements in which the Money Manager has as much to lose as to
gain if it chooses to increase the risk it takes with the Fund's account. The
table below identifies Money Managers that provide services to the funds with
performance-based fees, the fulcrum point under the Money Manager Agreement, and
the return that must be achieved by the Money Manager in order to earn the
Fulcrum Fee (100 bp equals 1.00%). See Appendix A to the Prospectus for
additional information about the Money Managers and their Agreements.
<PAGE>
Performance-Based Fees for Money Managers continued
4. What is a reasonable fee "floor"?
As with all model inputs, FAI's choice of an appropriate "floor" for each Money
Manager is based on an analysis of both the Money Manager's idiosyncratic
attributes and the perceived availability of qualified alternate Money Managers.
Having identified an appropriate minimum fee for each Money Manager, FAI then
identifies the level of return at which the fee "bottoms out."
5. What is a reasonable fee "cap"?
Having identified an appropriate floor, FAI then identifies, for each Money
Manager, the fee "cap." In all cases, the cap and the level of excess return at
which it is reached are selected in accordance with criteria that aim to reward
the Money Manager adequately for superior performance without creating
incentives for either undue risk-taking or undue risk aversion (i.e., "closet
indexing" of portfolio assets to the agreed-upon benchmark).
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Excess Return over Manager's
Benchmark Required to Receive
Money Manager Fulcrum Fee Fulcrum Fee
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aronson + Partners 45 bp 210 bp
Atlantic Asset Management Partners, LLC 35 bp 165 bp
Emerging Markets Management 170 bp 370 bp
Harding, Loevner Management, L.P. 80 bp 400 bp
Marathon Asset Management, Ltd. 88 bp 424 bp
Oechsle International Advisors, LLC (Select) 60 bp 300 bp
Oechsle International Advisors, LLC (CPEM) 40 bp 200 bp
Palo Alto Investors 105 bp 524 bp
Seix Investment Advisors, Inc. 45 bp 195 bp
Shapiro Capital Management Co., Inc. 73 bp 325 bp
Smith Breeden Associates, Inc. (Bond Fund) 48 bp 157 bp
Westport Asset Management, Inc. 108 bp 430 bp
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Computing and Remitting Fees. The computation and remittance procedures that
the funds employ are described immediately below. All fee schedules are applied
to the average daily net assets in each Money Manager's account for the time
period in question. For purposes of computing the funds' daily net asset
values, however, performance-based fees are accrued based on investment returns
achieved during the current performance fee period.
Computing and Remitting Fees. For the first two months following the inception
of their accounts, Money Managers receive a straight asset-based fee equal to
150% of the minimum (floor) rate, regardless of performance. Accrual of
performance-based fees begins in the third calendar month rather than at an
earlier date because the indices with reference to which Money Managers'
performance is computed are typically not available until five or more business
days after month-end. Since it is impractical to adjust fee accrual rates
intra-month (e.g., during the second calendar month of investment operations
based on performance achieved during the first month), the earliest that such
accruals can reflect Money Managers' actual performance is the third calendar
month.
<PAGE>
Performance-Based Fees for Money Managers continued
Thereafter, a Money Manager is compensated according to its performance-based
fee formula with the fee for a given month based on the Money Manager's
performance for the 12 months ending two months prior to that month. A two-
month time lag is employed because, while TIP's directors would prefer that fees
paid by members in a given month reflect their actual returns, two facts
preclude perfect linkage:
1. the law requires a minimum 12-month measurement period for performance-based
fees and
2. the returns on some managers' benchmarks (e.g., certain foreign stock
indices) are not available until after month-end.
In the third through fourteenth calendar month of their employment by a fund,
Money Managers agreeing to performance-based fee arrangements may receive only a
portion of the fees accrued by a fund with respect to segments of the fund
managed by them. This occurs because of the legal requirement that there be a
minimum one-year measurement period for performance-based portfolio management
fees. Specifically, during this 12-month time period, the Money Managers will
receive only the minimum (floor) fee to which they are entitled. Upon
determination (on or about the tenth day of the fifteenth calendar month of its
employment by the fund) of the precise amount of fees to which such Money
Manager is entitled for services rendered during the third through fourteenth
months, any fees owed to the Money Manager will be disbursed.
Advantages and Disadvantages of Accrual and Remittance Procedures. TIP's board
of directors recognizes that the procedure described above could give rise to
inequities among members. However, such inequities are likely to be less acute
than those produced by performance-based fee arrangements entailing measurement
periods longer than one year. For example, some regulated investment companies
have performance-based portfolio management fee arrangements entailing rolling
36-month performance measurement periods. Under such arrangements, shareholders
entering the fund in, for example, month 72 may be forced to pay the maximum
fees to which a money manager is entitled for several months following their
initial purchase if the manager's performance was sufficiently good during
months 36 through 71. This could occur even though the manager's performance is
less good in the months immediately following the new shareholder's entry (e.g.,
months 72 through 84), because the fees for these months will reflect the
manager's performance during prior time periods. The one-year measurement
period that TIP employs does not eliminate these intergenerational inequities
among changing shareholder populations, but it can help to minimize them.
Because TIP's board seeks to tie the portfolio management fees paid by
individual members as closely as possible to the gross investment returns they
actually realize, the board has approved performance-based fee arrangements with
certain Money Managers entailing the minimum one-year measurement period
permitted by law.
Control Persons and Principal Holders of Securities
As of March 31, 2000, there were no "control persons" (as such term is defined
in the 1940 Act) of TIP. All shares of each fund listed in this section are
Common Stock, $.001 per Share, and are directly held. As of March 31, 2000, the
following members held five percent or more of the outstanding shares of each
fund as indicated:
<TABLE>
<CAPTION>
Multi-Asset Fund
<S> <C>
1. William Caspar Graustein Memorial Fund; 84 Trumbull Street; New Haven, CT 06511 19.7%
2. Greater New Orleans Foundation; 1055 St. Charles Avenue, Suite 100; New Orleans, LA 70130 6.6%
3. MJH Foundation; 459 Locust Avenue; Charlottesville, VA 22902 6.5%
4. Presbyterian Homes and Family Services; 150 Linden Avenue, Lynchburg, VA 24503 5.2%
5. Wartburg Foundation; Wartburg Place; Mt. Vernon, NY 10552 5.2%
International Equity Fund
1. Houston Endowment Inc.; 600 Travis, Suite 6400; Houston, TX 77002 37.2%
2. BellSouth Foundation; 1155 Peachtree Street, Room 14F05; Atlanta, GA 30309 7.2%
</TABLE>
<PAGE>
Control Persons and Principal Holders of Securities continued
<TABLE>
<CAPTION>
Emerging Markets Fund
<S> <C>
1. Mayo Foundation; 200 First Street, SW; Rochester, MN 55905 20.2%
2. Carnegie Corporation of New York; 437 Madison Avenue; New York, NY 10022 19.9%
3. Pew Memorial Trust, c/o Glenmede; 1 Liberty Place, Ste 1200; 1650 Market St; Philadelphia, PA 19103 15.9%
4. The Colorado Trust; 1600 Sherman Street; Denver, CO 80203 8.1%
5. The Commonwealth Fund; One East 75th Street; New York, NY 10021 7.0%
6. William T. Grant Foundation; 570 Lexington Avenue, 18th Floor; New York, NY 10022 5.7%
<CAPTION>
US Equity Fund
<S> <C>
1. BellSouth Foundation, Inc.; 1155 Peachtree Street, Suite 14F05; Atlanta, GA 30309 13.3%
2. Denver Foundation; 950 S. Cherry Street, Suite 200; Denver, CO 80246 10.2%
3. Jacksonville Community Foundation; 112 W. Adams St., Suite 1414; Jacksonville, FL 32202 6.9%
4. East Tennessee Foundation; 550 W. Main Street, Suite 550; Knoxville, TN 37902 5.8%
<CAPTION>
Bond Fund
<S> <C>
1. The Duke Endowment; 100 North Tryon Street, Suite 3500; Charlotte, NC 28202 13.0%
2. Richard M. Fairbanks Foundation; 9292 North Meridian Street, Suite 304; Indianapolis, IN 46260 8.1%
3. RosaMary Foundation; 6028 Magazine Street; New Orleans, LA 70118 7.3%
4. East Tennessee Foundation; 550 W. Main Street, Suite 550; Knoxville, TN 37902 6.2%
5. Jacksonville Community Foundation; 112 W. Adams St., Suite 1414; Jacksonville, FL 32202 5.5%
<CAPTION>
Short-Term Fund
<S> <C>
1. Undisclosed Private Foundation; New York, NY 33.3%
2. Houston Endowment Inc.; 600 Travis, Suite 6400; Houston, TX 77002 18.3%
3. Woods Fund of Chicago; 3 First National Plaza, Suite 2010; Chicago, IL 60602 6.2%
4. Wartburg Foundation; Wartburg Place; Mt. Vernon, NY 10552 5.4%
</TABLE>
Distribution of TIFF Funds
Distributor. The distribution agreement (the "Distribution Agreement") among the
TIP, Investors Bank & Trust Company, an affiliate of the Administrator, and
First Fund Distributors, Inc., (the "Distributor") became effective January 1,
2000. The Distributor shall receive compensation in the amount of $25,000 per
annum, to be paid no less frequently than monthly by the Administrator. In
addition, the Distributor will be entitled to reimbursement of reasonable out-
of-pocket expenses incurred (including but not limited to NASD filing fees
incurred pursuant to the Distribution Agreement) within ten days of delivery of
a valid invoice. Prior to First Fund Distributors, Inc., the distributor of TIP
was AMT Capital Securities, LLC.
The Distribution Agreement will remain in effect for an initial two-year period.
The Distribution Agreement will continue in effect for successive one-year
periods, provided that each such continuance is specifically approved (i) by the
vote of a majority of the Directors or by a vote of a majority of the shares of
the relevant fund; and (ii) by a majority of the Directors who are not parties
to the Distribution Agreement or interested persons (as defined in the 1940 Act)
of any such person, cast in person at a meeting called for the purpose of voting
on such approval. The Distribution Agreement was approved by TIP's Board of
Directors on March 7, 2000.
Purchases. TIP reserves the right in its sole discretion to (1) suspend the
offering of shares of any fund, (2) reject purchase orders when in the judgment
of management such rejection is in the best interests of TIP, and (3) reduce or
waive the minimum for initial investments.
<PAGE>
Distribution of TIFF Funds continued
Potential In-Kind Purchases. Fund shares are normally issued for cash only.
In-kind purchases are accepted only when the securities being acquired:
1. are consistent with the investment objectives and policies of the acquiring
fund,
2. are acquired for investment purposes (not for resale),
3. are not restricted as to transfer either by law or market liquidity, and
4. can be readily valued (e.g., are listed on a recognized exchange).
Redemptions. Each fund may suspend redemption privileges or postpone the date
of payment (1) during any period that TIP is closed, (2) during any period when
an emergency exists as defined by the rules of the SEC as a result of which it
is not reasonably practicable for a fund to dispose of securities owned by it,
or fairly to determine the value of its assets, and (3) for such other periods
as the SEC may permit.
Potential In-Kind Redemptions. Should conditions exist which make cash payments
undesirable, TIP reserves the right to honor any request for fund redemption by
making payment in whole or in part in readily marketable securities. These will
be chosen by TIP and valued in the same manner as they are for purposes of
computing the fund's net asset value (redemption-in-kind). If payment is made
in securities, a member may incur transaction expenses in converting these
securities to cash. TIP has elected, however, to be governed by Rule 18f-1
under the 1940 Act. This obligates TIP to redeem shares, with respect to any
one member during any 90-day period, solely in cash up to the lesser of $250,000
or 1% of the net asset value of a fund at the beginning of the period. TIP is
permitted to borrow to finance such redemptions without regard to restrictions
that might otherwise apply under the 1940 Act.
Exchanges. One fund's shares may be exchanged for shares of any other fund. An
exchange is a redemption out of one fund and a purchase into another; thus, the
applicable entry and exit fees for purchases and redemptions will apply. Any
such exchange will be based on the respective net asset values of the shares
involved as of the date of the exchange. Before making an exchange, a member
should consider the investment objectives of the fund to be purchased.
Exchange Procedures. Exchange requests may be made either by mail or telephone
and should be directed to FAI. Telephone exchanges will be accepted only if the
shares to be exchanged are held by the fund for the account of the shareholder
and the registrations of the two accounts are identical. Telephone requests for
exchanges received prior to 4:00 p.m. Eastern time will be processed as of the
close of business on the same day. Requests received after 4:00 p.m. will be
processed on the next business day. Telephone exchanges may also be subject to
limitations as to amounts or frequency and to other restrictions established by
the board of directors to ensure that such exchanges do not disadvantage TIP and
its members.
Tax Treatment of Exchanges. For federal income tax purposes an exchange between
funds is a taxable event and, accordingly, a capital gain or loss may be
realized. Members should consult their tax advisors for further information in
this regard. The exchange privilege may be modified or terminated at any time.
Supplemental Discussion of Investment
Objectives, Policies, and Restrictions
Potential Benefits and Costs of Investing in Foreign Securities. Many
institutional investors have made major commitments to foreign securities,
typically for two reasons: (1) to reduce the volatility of their overall returns
(foreign markets and domestic markets tend to rise and fall at different times)
and (2) to enhance these returns over the long term.
<PAGE>
Supplemental Discussion of Investment
Objectives, Policies, and Restrictions continued
A long-term investment horizon is appropriate because foundation governing
boards, which typically meet on a part-time basis, are generally unable to shift
funds profitably between domestic and foreign markets in anticipation of short-
term market movements. The safer assumption is that shifts of this sort will
not produce profits net of trading costs. The opportunity to enhance long-term
returns by investing in foreign markets lies in the fact that international
money managers have far more companies (and countries) to choose from than do
managers investing solely in domestic securities. Therefore, the potential
added value from active portfolio management is higher for international stock
portfolios than for purely domestic ones.
The costs of investing in foreign securities are higher also, not only because
management fees and custody costs tend to be higher on international portfolios
but also because foreign governments withhold a portion of the income that
investors earn abroad. Despite these higher costs, the dual benefits of
investing in foreign securities (increased diversification and the opportunity
to earn higher returns by exploiting valuation inefficiencies in foreign
markets) make a substantial allocation to them worthy of serious consideration
by most foundation boards.
Performance Objectives. The funds seek to outperform their performance
benchmarks by different margins. These margins differ because:
1. the costs of implementing each fund's investment policies differ and
2. the markets in which the funds primarily invest vary in terms of efficiency,
with the US stock and fixed income markets arguably the most efficient (in a
valuation sense) of all.
The margin by which each fund seeks to outperform its performance benchmark thus
reflects judgments by TIP's directors of the excess return that a properly
diversified, actively managed fund might realistically seek to earn net of the
costs that must be incurred to produce this excess return. "Excess return" as
used here means the difference between a Fund's total return and the total
return of its performance benchmark.
Short-Term Fund. As experienced foundation fiduciaries, members of the boards
of TIP and FAI recognize that many foundations seek to control downward
fluctuations in the value of assets earmarked for spending or distribution (in
the form of grants) within 12 months ("current year spending"). This is
generally achieved by investing them exclusively in cash equivalents, either
directly or via money market funds. While such a policy comports well with the
risk tolerances of some foundation fiduciaries, numerous studies of the
risk/return characteristics of alternate short-term investment strategies
suggest that a short-term bond fund whose average maturity ranges between the
one to three months typical of regulated money market funds and the six months
inherent in the Short-Term Fund's performance benchmark has the potential to
augment foundation resources over time. Of course, the higher yields three- to
six-month instruments typically display relative to shorter-term instruments may
be insufficient to offset the larger principal losses longer-term securities
produce in rising interest rate environments. However, the data below indicate
that there is a high probability of earning positive total returns in a given
month by investing exclusively in securities included in the Short-Term Fund's
benchmark (i.e., six-month Treasury bills). The data show that, in the more
than 23-year period ending March 31, 1998, there were only four calendar months
in which a portfolio invested exclusively in six-month Treasury bills produced a
negative total return. The worst loss was 0.15% (October 1979) and the average
loss (four months, equally weighted) was 0.10%. It is important to note that
this period encompasses several years (e.g., 1979-81) in which short-term
interest rates rose at a speed and to a level that were unprecedented.
Risks of Investing Current Year Spending Monies in the Short-Term Fund. While
there is no assurance that the Short-Term Fund's average duration will be less
than six months in an environment of rising short-term interest rates, the
Fund's Money Managers are authorized to shorten its average duration if they
expect short-term interest rates to rise and are prohibited by the Fund's
investment policy from maintaining a weighted average duration exceeding six
months. Consequently, in the opinion of TIP's board, it is unlikely that rising
interest rates alone will cause the Fund's net asset value to decline materially
over one-month (or longer) holding periods, even if short-term rates rise as
quickly as they did in the 1979-1981 time period. However, because the Fund
will not be invested exclusively in
<PAGE>
Supplemental Discussion of Investment
Objectives, Policies, and Restrictions continued
instruments backed by the full faith and credit of the US government, it is
possible that downgrades, defaults, and other elements of credit risk could
cause the Fund's net asset value to decline by more than 0.15% in any given one-
month holding period.
In the judgment of TIP's board, the potential rewards of investing monies
earmarked for current year spending in a more aggressive manner than that
typical of money market funds in general, and government money market funds in
particular, outweigh the risks. However, the board recognizes that many
foundations may remain unpersuaded by this argument, and it encourages such
foundations to invest such monies not in the Short-Term Fund but rather in
carefully selected, institutionally oriented money market funds with competitive
expense ratios and adequate restrictions on the maturity and quality of
portfolio holdings.
Fundamental Investment Restrictions. The funds have adopted certain fundamental
investment restrictions, which cannot be changed without the approval of the
holders of a majority of the fund's outstanding voting securities. Under these
restrictions, which apply on a fund by fund basis, no fund may:
1. Invest more than 25% of the value of the fund's total assets in the
securities of companies engaged primarily in any one industry (other than
the US government, its agencies, and instrumentalities). For purposes of
this restriction, wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents. This restriction shall not
apply, however, to the Short-Term Fund, which may invest more than 25% of
its total assets in domestic bank obligations.
2. Acquire short positions in the securities of a single issuer (other than
the US government, its agencies, and instrumentalities) whose value (as
measured by the amounts needed to close such positions) exceeds 2% of the
fund's total assets.
3. Borrow money, except from a bank for temporary or emergency purposes
provided that bank borrowing not exceed one-third (33/1//3%) of the fund's
total assets at the time of borrowing. No fund may borrow for leveraging
purposes. Reverse repurchase agreements, dollar roll transactions, and
collateralized securities loans that are covered with cash or liquid high-
grade securities or other acceptable assets are not considered borrowings
subject to this restriction.
4. Issue senior securities [other than as permitted in (2) and (3)].
5. Make loans, except:
(a) through the purchase of all or a portion of an issue of debt
securities in accordance with its investment objective, policies, and
limitations;
(b) by engaging in repurchase agreements with respect to portfolio
securities; or
(c) by lending securities to other persons, provided that no securities
loan may be made if, as a result, more than one-third (33/1//3%) of
the value of the fund's total assets would be loaned to other persons.
6. Underwrite securities of other issuers.
7. Purchase or sell real estate (other than marketable securities representing
interests in, or backed by, real estate and securities of companies that
deal in real estate or mortgages) or real estate limited partnerships, or
purchase or sell physical commodities or contracts relating to physical
commodities.
8. Invest directly in interests in oil, gas, or other mineral exploration or
development programs or mineral leases.
<PAGE>
Supplemental Discussion of Investment
Objectives, Policies, and Restrictions continued
Non-Fundamental Investment Restrictions. The funds have adopted certain non-
fundamental restrictions, which may be changed by the board of directors without
member approval. Under these restrictions, no fund may:
1. Acquire more than 10% of the outstanding voting securities or 10% of all of
the securities of any one issuer.
2. Acquire long positions in the securities of a single issuer (other than the
US government, its agencies, and instrumentalities) whose value exceeds 10%
of the fund's total assets.
3. Purchase securities of any company having less than three years' continuous
operations (including operations of any predecessors) if such purchase
causes the value of the fund's investments in all such companies to exceed
5% of its total assets. This restriction shall not apply, however, to
purchases of investment company securities, US government securities,
securities of issuers that are rated investment grade by at least one
nationally recognized statistical rating organization, municipal
obligations, and obligations issued by any foreign governments, agencies,
or instrumentalities, or any political subdivisions thereof.
4. Purchase securities of another investment company if such purchases cause
the percentage of such investment company's outstanding shares owned by the
TIP fund in question to exceed 3%.
5. Invest in companies for the purpose of exercising control or management.
6. Invest more than 15% of the fund's net assets in illiquid securities
(typically defined as those which cannot be sold or disposed of in the
ordinary course of business within seven days for approximately the amount
at which the fund has valued the securities).
7. Purchase puts, calls, straddles, spreads, and any combination thereof, if
the value of such purchases, excluding offsetting positions and in-the-
money amounts, exceeds 5% of the fund's total assets.
Percentage Limitations Applied at Time of Purchase. The above standards and
restrictions are determined immediately after and as a result of the fund's
acquisition of such security or other asset. Accordingly, any later increase or
decrease in a percentage resulting from a change in values, assets, or other
circumstances will not be considered when determining whether that investment
complied with the fund's investment policies and limitations.
Potential Benefits and Costs of Passive Investing. Index funds appeal to many
investors because they offer wide exposure to given markets and track closely
(but not exactly) the target market's performance. They also appeal to
investors who are skeptical about the ability of active managers to add value
through stock selection as well as to investors who want to combine active and
passive exposure to a given market. In addition, because they minimize trading
activity and do not incur the costs associated with fundamental stock and
economic research, they typically offer low-cost exposure to the target market.
However, a mutual fund that invests passively has operating expenses and
transaction costs while a market index does not. Therefore, although an index
fund is expected to track its target benchmark as closely as possible, it
typically will not match the benchmark performance exactly and usually will
underperform it slightly. And while an index fund should not be expected to
underperform its benchmark significantly, neither should it be expected to
outperform it dramatically.
Policy Implementation and Risks
Funds to Be Substantially Fully Invested. Each fund intends to be substantially
fully invested according to its investment objective and policies under normal
market conditions.
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Policy Implementation and Risks continued
Deployment of Cash Reserves. Each fund is authorized to invest its cash
reserves (funds awaiting investment in the securities in which it primarily
invests) in money market instruments and debt securities that are at least
comparable in quality to the fund's permitted investments. In lieu of separate,
direct investments in money market instruments, the fund's cash reserves may be
invested in other regulated investment companies approved by TIP's board of
directors. Alternatively, FAI may exercise investment discretion or select a
Money Manager to exercise investment discretion over a fund's cash reserves.
Temporary Equity Exposure. At FAI's discretion, the cash reserves segment of
each fund may be used to create a temporary equity exposure for the Multi-Asset,
US Equity and US Equity Index Funds, a foreign equity exposure for the Multi-
Asset, International Equity, and Emerging Markets Funds, or a fixed income
exposure of suitable duration for the Bond, Government Bond Index, Inflation-
Linked Bond and Multi-Asset Funds, as the case may be, until those balances are
allocated to and invested by the Money Managers or used for fund transactions.
The desired market exposure would be created with long positions in the
appropriate number of futures contracts or options on futures contracts within
applicable regulatory limits.
Portfolio Turnover. Decisions to buy and sell securities are made by the Money
Managers with respect to the assets assigned to them and by FAI with respect to
cash reserves not allocated to Money Managers. Each Money Manager decides to
purchase or sell securities independently of other Money Managers. Generally,
the Multi-Asset, International Equity, Emerging Markets, and US Equity Funds
will not trade in securities for short-term profits; however, circumstances may
warrant that securities be sold without regard to length of time held. It is
expected that the annual portfolio turnover rate normally will not exceed 100%.
However, due to some Money Managers' active management styles, turnover rates
for the Bond and Short-Term Funds may be higher than other mutual funds
investing primarily in debt securities and may exceed 100%. In the fixed income
funds, the costs associated with turnover are expected to be lower than equity
fund turnover costs.
Primary Risks. High portfolio turnover may result in greater brokerage
commissions and other transaction costs, which will be borne by the funds.
In addition, high portfolio turnover rates may result in increased short-
term capital gains which, when distributed to private foundation members,
are treated as ordinary income for excise taxation purposes.
A fund may have two or more Money Managers. As such, one Money Manager
could be selling a security when another, for the same fund, is purchasing
the same security. In addition, when a Money Manager's services are
terminated and those of another are retained, the new Money Manager may
significantly restructure the portfolio. These practices may increase the
funds' portfolio turnover rates, realization of gains or losses, and
brokerage commissions.
Borrowing. Each fund may borrow money temporarily from banks when:
1. it is advantageous to do so in order to meet redemption requests,
2. a fund fails to receive transmitted funds from a member on a timely basis,
3. TIP's Custodian fails to complete delivery of securities sold, or
4. a fund needs cash to facilitate the settlement of trades made by the fund.
In addition, each fund may make securities loans or lend securities by engaging
in reverse repurchase agreements and/or dollar roll transactions, described
below. By engaging in such transactions, a fund may, in effect, borrow money.
Securities may be borrowed under repurchase agreements.
Duration Management. The Multi-Asset, Bond, Government Bond Index, Inflation-
Linked Bond and Short-Term Funds invest in debt securities of varying durations.
Duration is a measure of the expected life of a debt security on a present value
basis. It takes the length of the time intervals between the present time and
the time that the interest and principal payments are scheduled to be received
and weights them by the present values of the cash to be received at each future
point in time.
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Policy Implementation and Risks continued
The longer the duration of a debt security, the more its price will tend to fall
as interest rates in the economy generally rise and vice-versa. For example, in
a portfolio with a duration of five years, a 1% increase in interest rates could
result in approximately a 5% decrease in market value. Money Managers can
change the weighted average duration of their holdings as interest rates move by
replacing portfolio securities or using derivative securities.
Primary Risks. There is no assurance that deliberate changes in a fund's
weighted average duration will enhance its return relative to more static
duration policies or portfolio structures. For example, a Money Manager's
decision to increase the duration of its segment of the Bond Fund could
reduce the Fund's return if interest rates in the economy rise following
the manager's duration-lengthening trades.
Multi-Market and Multi-Currency Investing. Subject to certain limitations on
foreign securities and foreign currency exposure defined in each Money Manager's
guidelines, Money Managers may adjust the exposure of the funds to different
countries' markets and currencies based on their perceptions of their relative
valuations. In doing so, Money Managers will assess:
1. general market and economic conditions,
2. the relative yield and anticipated direction of interest rates in particular
markets, and
3. the relationship among the currencies of various countries.
In their evaluations, Money Managers will use internal financial, economic, and
credit analysis resources as well as information from external sources.
The ranges permit US Equity Fund Money Managers to respond to circumstances in
which foreign stocks are more attractively priced than US stocks by investing up
to 15% of the Fund's assets in foreign stocks. They permit Money Managers of
the Multi-Asset, International Equity, and Emerging Markets Funds to hedge up to
50% of the foreign currency exposure of each fund's assets. It is expected that
adjustments to the country and currency exposures of each fund will be gradual
and moderate, especially within the US Equity, Bond, and Short-Term Funds.
Primary Risks. There is no assurance that changes in a fund's country and
currency allocations will enhance returns relative to more static
allocations, or relative to allocations that resemble more closely the
country and currency allocations inherent in a fund's performance
benchmark.
Foreign Currency Exposure. TIP's directors have studied carefully the impact of
exchange rate changes on the US dollar value of foreign securities portfolios
and have concluded that the impact of such changes declines dramatically as the
investment time horizon lengthens. This is especially true because global
investors routinely adjust the prices they are willing to pay for shares of a
given firm in response to changes in the foreign exchange value of the
currencies in which its products (and costs) are denominated. For example,
while it is likely that a sudden 10% decline in the Japanese yen's value in US
dollar terms will produce short-term losses in the dollar value of shares of
Japanese exporters, the increased competitiveness of such firms typically will
cause global investors to mark upwards such firms' relative price/earnings or
price/book value multiples, albeit with a lag.
Exchange rate movements can produce large losses over short- and even medium-
term time horizons, but TIP's directors strongly discourage foundations from
investing in foreign securities in pursuit of short-term gains, and they believe
that exchange rate movements are essentially neutral over the longer-term time
horizons which most global investors properly employ. The logic of this
position can be assessed by considering the implications of the opposite belief:
that investors can earn an economic return over the very long term merely by
holding certain currencies (i.e., continually rolling over long positions in a
given currency or basket of currencies in the spot or futures markets). While
there have undeniably been short-term periods when currency exposure per se
produced positive real returns (e.g., holding Japanese yen during the five years
ending December 1993), global trade and capital flows make it very difficult for
the imbalance created by massive changes (up or down) in the foreign currency
exchange value to persist. Countries whose currencies plummet in value can
suffer enormous hardships, as can holders of shares denominated in such
currencies. However, devaluations ultimately enhance these countries'
competitiveness, thereby inducing global investors to sell shares of firms
domiciled in countries with revalued currencies in order to fund purchases of
shares of firms domiciled in countries with devalued ones.
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Policy Implementation and Risks continued
Foreign Currency Hedging. Each of the funds may enter into forward foreign
currency contracts (a "forward contract") and may purchase and write (on a
covered basis) exchange-traded or over-the-counter ("OTC") options on
currencies, foreign currency futures contracts, and options on foreign currency
futures contracts. The primary objective of such transactions is to protect
(hedge) against a decrease in the US dollar equivalent value of its foreign
securities or the payments thereon that may result from an adverse change in
foreign currency exchange rates. Conditions in the securities, futures,
options, and foreign currency markets will determine whether and under what
circumstances TIP will employ any of the techniques or strategies described
below. TIP's ability to pursue certain of these strategies may be limited by
applicable regulations of the Commodity Futures Trading Commission ("CFTC") and
the federal tax requirements applicable to regulated investment companies (see
Tax Considerations).
Forward Contracts. A forward exchange contract is the purchase or sale of
foreign currency at an exchange rate established now but with payment and
delivery at a specified future time. It insulates returns from securities
denominated in that currency from exchange rate fluctuations to the extent of
the contract while the contract is in effect. A sale contract will be
advantageous if the currency falls in value against the dollar and
disadvantageous if it increases in value against the dollar. A purchase
contract will be advantageous if the currency increases in value against the
dollar and disadvantageous if it falls in value against the dollar.
Funds may use forward contracts to insulate existing security positions
("position hedges") or proposed transactions ("transaction hedges"). For
example, to establish a position hedge, a forward currency contract might be
sold to protect the gain from a decline in the value of that currency against
the dollar. To establish a transaction hedge, a foreign currency might be
purchased on a forward basis to protect against an anticipated increase in the
value of that currency against the dollar.
Primary Risks. The success of currency hedging depends on the Money
Manager's ability to predict exchange rate fluctuations. Predicting such
fluctuations is extremely difficult, and thus the successful execution of a
hedging strategy is highly uncertain. An incorrect prediction will hurt
fund performance. Forward contracts that protect against anticipated
losses have the corresponding effect of canceling possible gains if the
currency movement prediction is incorrect.
Precise matching of forward contract amounts and the value of portfolio
securities is often not possible because the market value of the protected
securities will fluctuate while forward contracts are in effect.
Adjustment transactions are theoretically possible but time consuming and
expensive, so forward contract positions are likely to be approximate, not
perfect, hedges.
The cost to a fund of engaging in forward contracts varies with factors
such as the foreign currency involved, the length of the contract period,
and prevailing market conditions, including general market expectations as
to the direction of various foreign currency movements against the US
dollar. Furthermore, neither FAI nor the Money Managers may be able to
purchase forward contracts with respect to all of the foreign currencies in
which the fund's portfolio securities may be denominated. In that case,
the correlation between exchange rates and the portfolio's foreign currency
exposure may not be precise. Moreover, if the forward contract is an over-
the-counter transaction, as is usually the case, the fund will be exposed
to the credit risk of its counterparty. If, on the other hand, a fund
enters into such contracts on a foreign exchange, the contract will be
subject to the rules of that foreign exchange, which may impose significant
restrictions on the purchase, sale, or trading of such contracts, including
the imposition of limits on price moves. Such limits may significantly
affect the ability to trade such a contract or otherwise close out the
position and could create potentially significant discrepancies between the
cash and market value of the position in the forward contract. Finally,
the cost of purchasing forward contracts in a particular currency will
reflect, in part, the rate of return available on instruments denominated
in that currency. The cost of purchasing forward contracts to hedge
portfolio securities that are denominated in currencies that in general
yield high rates of return may thus tend to reduce that rate of return
toward the rate of return that would be earned on assets denominated in US
dollars.
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Policy Implementation and Risks continued
Other Hedging Strategies and Tactics. A fund may employ other hedging
strategies, such as interest rate, currency and index swaps, and the purchase or
sale of related caps, floors, and collars. An index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
referenced indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar
is a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
Each fund may enter into these transactions primarily:
1. to preserve a return or spread on a particular investment or portion of its
portfolio,
2. to protect against currency fluctuations,
3. as a duration management technique, or
4. to protect against any increase in the price of securities the fund
anticipates purchasing at a later date.
The funds intend to use these transactions as hedges and not as speculative
investments and will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the fund may be
obligated to pay. With respect to swaps, a fund will accrue the net amount of
the excess, if any, of its obligations over its entitlements with respect to
each swap on a daily basis and will segregate an amount of cash or liquid
securities having a value equal to the accrued excess. Caps, floors, and
collars require segregation of assets with a value equal to the fund's net
obligation, if any.
Long/Short Strategies. In the opinion of TIP's and FAI's directors, the US
stock market is highly efficient in terms of valuation and is becoming more so
at a rapid rate due to the combined impact of falling computing costs,
globalization of financial markets, and regulatory changes. In short, with so
many powerful computers and skilled professionals attempting to exploit
valuation anomalies among US stocks, it is becoming increasingly difficult to
outperform market averages. This is one reason why the US Equity Fund employs
so-called long/short investment strategies, which entail the construction of a
portfolio comprising long positions in stocks which the Money Manager perceives
as undervalued, offset by an equivalent dollar amount of short positions in
stocks which the Money Manager perceives as overvalued. Because the long and
short subportfolios offset or neutralize each other, long/short strategies are
sometimes referred to as "market neutral" strategies.
Long versus Short Positions. The rationale for using long/short strategies is
simply stated: if you believe that skilled active managers can identify stocks
that are likely to outperform market averages (i.e., they are undervalued), then
it is also logical to assume that skilled active managers can identify stocks
that are likely to underperform market averages (i.e., they are overvalued
issues). In an increasingly efficient market, "short" sale techniques are
appealing because they exploit a structural inefficiency in capital markets: the
tendency of most investors to focus on the identification of undervalued, as
distinct from overvalued, securities. Indeed, one of the chief reasons why it
is becoming increasingly difficult to outperform the US stock market is that
long/short strategies, while still unconventional, are becoming increasingly
popular among the large institutions that dominate the US stock market.
Outperforming broad market averages without using long/short strategies remains
possible, of course, but in the opinion of TIP's directors the advantages of
allocating a defined portion (zero to 30%) of the US Equity Fund to such
strategies outweigh the risks (discussed immediately below).
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Policy Implementation and Risks continued
Primary Risks. Risks of investing in short strategies are markedly
different from those associated with long positions. Given the
restrictions to which managers employing long/short strategies are subject,
however, US Equity Fund members are not exposed to the risk of losing all
their invested capital as a result of a stratospheric increase in the value
of a single security (or indeed the stock market generally). Like the
other institutions employing long/short strategies with which TIP and FAI
directors are associated, TIP employs several safeguards to control the
risks of such strategies:
1. Any long/short portfolios held by the fund must comprise an
approximately equivalent dollar amount of long and short positions in a
diversified list of issues and must be overlaid with long positions in
stock index futures contracts, thus limiting potential losses on the
short positions caused by a rise in stock prices.
2. The dollar size of a short position in a single stock may not represent
more than 2% of a fund's net assets.
Securities Lending. Through its custodial bank and subject to strict guidelines
summarized below, TIP may actively lend the securities held in all of its funds.
The incremental income from such lending activities varies from fund to fund,
with US securities typically commanding much narrower lending "spreads"
(according to Kohlberg and Associates, average lending income might approximate
0.02% to 0.05% per annum) than foreign securities (0.15% to 0.75% per annum).
These differences stem primarily from the far greater availability of lendable
US securities in relation to borrowing demand than exists in non-US markets.
Each fund is authorized to lend securities from its investment portfolios, with
a value not exceeding 331/3% of its total assets (including collateral received
in connection with any loans) provided, however, that it receives collateral in
cash, US government securities, or irrevocable bank stand-by letters of credit
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. The loans may be terminated at any time
by TIP, and the relevant fund will then receive the loaned securities within
five days. During the loan period, the fund receives the income on the loaned
securities and a loan fee and may thereby increase its total return. At the
present time, the SEC does not object if an investment company pays reasonable
negotiated fees in connection with loaned securities as long as such fees are
set forth in a written contract and approved by the investment company's board
of directors. In addition, voting rights may pass with the loaned securities,
but if a material event occurs affecting a security on loan, the loan must be
called and the securities voted.
Dollar Roll Transactions. Dollar roll transactions consist of the sale to a
counterparty (a bank or broker-dealer) of GNMA certificates or other mortgage-
backed securities together with a commitment to purchase from the counterparty
GNMA certificates or other mortgage-backed securities at a future date at the
same price. The counterparty receives all principal and interest payments,
including prepayments, made on the security while it is the holder. The fund
receives a fee from the counterparty as consideration for entering into the
commitment to repurchase. Dollar rolls may be renewed with a new purchase and
repurchase price fixed and a cash settlement made at each renewal without
physical delivery of securities. Moreover, the transaction may be preceded by a
firm commitment agreement pursuant to which the fund agrees to buy a security on
a future date. A fund will not use such transactions for leverage purposes and,
accordingly, will segregate cash, US government securities, or other high grade
debt obligations in an amount sufficient to meet its purchase obligations under
the transactions.
Dollar rolls are similar to reverse repurchase agreements (described below)
because they involve the sale of a security coupled with an agreement to
repurchase. Like borrowings, a dollar roll involves costs to a fund. For
example, while a fund receives a fee as consideration for agreeing to repurchase
the security, it foregoes the right to receive all principal and interest
payments while the counterparty holds the security. These payments to the
counterparty may exceed the fee received by the fund, thereby effectively
charging the fund interest on its borrowing. Further, although the fund can
estimate the amount of expected principal prepayment over the term of the dollar
roll, a variation in the actual amount of prepayment could increase or decrease
the cost of the fund's entry into the dollar roll.
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Policy Implementation and Risks continued
Primary Risks. Dollar rolls involve potential risks of loss which are
different from those related to the securities underlying the transactions.
For example, if the counterparty becomes insolvent, a fund's right to
purchase from the counterparty might be restricted. Additionally, the
value of such securities may change adversely before the fund is able to
repurchase them. Similarly, a fund may be required to purchase securities
in connection with a dollar roll at a higher price than may otherwise be
available on the open market. Since the counterparty is not required to
deliver an identical security to a fund, the security that the fund is
required to buy under the dollar roll may be worth less than an identical
security. Finally, there can be no assurance that a fund's use of cash
that it receives from a dollar roll will provide a return that exceeds
borrowing costs.
Repurchase and Reverse Repurchase Agreements. In a repurchase agreement, a fund
buys securities from a counterparty (e.g., a bank or securities firm) with the
agreement that the counterparty will repurchase them at the same price plus
interest at a later date. Repurchase agreements may be characterized as loans
secured by the underlying securities. Such transactions afford an opportunity
for the fund to earn a return on available cash at minimal market risk, although
the fund may be subject to various delays and risks of loss if the counterparty
becomes subject to a proceeding under the US Bankruptcy Code or is otherwise
unable to meet its obligation to repurchase. The securities underlying a
repurchase agreement will be marked to market every business day so that the
value of such securities is at least equal to the value of the repurchase price
thereof, including the accrued interest.
In a reverse repurchase agreement, a fund sells US government securities and
simultaneously agrees to repurchase them at an agreed-upon price and date. The
difference between the amount the fund receives for the securities and the
additional amount it pays on repurchase is deemed to be a payment of interest.
TIP will maintain for each fund a segregated custodial account containing cash,
US government securities, or other appropriate assets having an aggregate value
at least equal to the amount of such commitments to repurchase, including
accrued interest, until payment is made. Reverse repurchase agreements create
leverage, a speculative factor, but will not be considered borrowings for the
purposes of limitations on borrowings.
In addition, repurchase and reverse repurchase agreements may also involve the
securities of certain foreign governments in which there is an active repurchase
market. FAI and the Money Managers expect that such repurchase and reverse
repurchase agreements will primarily involve government securities of countries
belonging to the Organization for Economic Cooperation and Development ("OECD").
Transactions in foreign repurchase and reverse repurchase agreements may involve
additional risks.
Primary Risks. If the counterparty defaults on its obligation to
repurchase the underlying securities at a time when the value of these
securities has declined, a fund may incur a loss upon their disposition.
If the counterparty becomes insolvent and subject to liquidation or
reorganization under the Bankruptcy Code or other laws, a bankruptcy court
may determine that the underlying securities are collateral not within the
control of the fund and are therefore subject to sale by the trustee in
bankruptcy. Finally, it is possible that the fund may not be able to
substantiate its interest in the underlying securities. While TIP's
management acknowledges these risks, it is expected that they can be
mitigated through stringent security selection criteria and careful
monitoring procedures.
Types of Investments
Equity Securities. Equities are ownership interests possessed by shareholders
in a corporation, commonly referred to as "stocks."
General Risks of Equity Securities. Common stock prices will decline over
short or extended periods. Both the US and foreign stock markets tend to
be cyclical with periods when stock prices generally rise and periods when
prices generally decline.
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Policy Implementation and Risks continued
Warrants. Warrants are instruments which give the holder the right to purchase
the issuer's securities at a stated price during a stated term.
Primary Risks. Warrants involve a risk of loss of the warrant purchase
price if the market price of the securities subject to the warrants does
not exceed the price paid for the warrants plus the exercise price of the
warrants.
As long as it remains a policy of the State of Texas, a fund's investment in
warrants, taken at the lower of cost or market value, may not exceed 5% of the
fund's net assets. Not more than 2% of a fund's net assets may be invested in
warrants not listed on the New York or American Stock Exchanges.
Foreign Equities. Foreign equities include shares denominated in currencies
other than the US dollar, including any single currency or multi-currency units,
as well as ADRs and EDRs. ADRs typically are issued by a US bank or trust
company and evidence ownership of underlying securities issued by a foreign
corporation. EDRs, which are sometimes referred to as Continental Depositary
Receipts, are receipts issued in Europe, typically by foreign banks and trust
companies, which evidence ownership of either foreign or domestic underlying
securities.
Foreign financial markets generally have substantially less volume than US
markets, and securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable domestic companies. The
foreign markets also have different clearance and settlement procedures, and in
certain markets settlements have sometimes been unable to keep pace with the
volume of transactions making it difficult to conclude such transactions.
Under certain adverse conditions, each fund may restrict the financial markets
or currencies in which its assets are invested, and it may invest its assets
solely in one financial market or in obligations denominated in one currency.
Primary Risks of Foreign Equities Generally. Like domestic stocks, foreign
equities entail stock market risk. In addition, in certain foreign
countries there is the possibility of expropriation of assets, confiscatory
taxation, political or social instability, or diplomatic developments that
could adversely affect investment. There may be less publicly available
information regarding operations and financial results, and foreign
entities may not be subject to accounting, auditing, and financial
reporting standards and requirements comparable to those of United States
entities. A fund could encounter difficulties in obtaining or enforcing a
judgment against the issuer in certain foreign countries. In addition,
certain foreign investments may be subject to foreign withholding or other
taxes, although the fund will seek to minimize such withholding taxes
whenever practical.
Risks Associated with Currency Exchange Rate Changes. Changes in foreign
currency exchange rates may affect the value of a fund's investments.
While a fund may hedge its assets against foreign currency risk, there can
be no assurance that currency values will change as predicted, and a fund
may suffer losses as a result of such hedging.
Emerging Markets Equities. The funds define emerging markets as those countries
having an "emerging stock market" as defined by Morgan Stanley Capital
International, low- to middle-income economies according to the World Bank, or
those listed in World Bank publications as developing. Under this definition,
the funds consider emerging markets to include all markets except Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland,
Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Singapore,
Spain, Sweden, Switzerland, the United Kingdom, and the United States.
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Policy Implementation and Risks continued
Primary Risks of Emerging Markets Equities. In addition to the risks of
foreign equities as set forth above, stock prices in emerging markets can
be significantly more volatile than in developed nations, reflecting the
greater uncertainties of investing in less established economies, in that
the countries may:
1. have relatively unstable governments, raising the risk of sudden adverse
government action and even nationalization of businesses,
2. place restrictions on foreign ownership or prohibitions on repatriation
of assets, or
3. provide relatively less protection of property rights.
In addition, their economies:
1. may be based predominantly on one or a few industries,
2. may be highly vulnerable to changes in local or global trade
conditions, and
3. may suffer from extreme and volatile debt burdens or inflation rates.
Local securities markets may trade a small number of securities and may be
unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of substantial holdings difficult or impossible
at times. Settlement and dividend collection procedures may be less
reliable. These securities may have limited marketability and may be
subject to more abrupt or erratic price movements.
Debt Securities. The characteristics and primary risks of the debt securities
in which the funds typically invest are described below.
Primary Risks of Debt Securities Generally. Debt securities entail
interest rate, prepayment, credit, and event risks.
Interest Rate Risk. Interest rate risk is the risk of fluctuations in bond
prices due to changing interest rates. As a rule, bond prices vary
inversely with market interest rates. For a given change in interest
rates, longer maturity bonds fluctuate more in price than shorter maturity
bonds. To compensate investors for these larger fluctuations, longer
maturity bonds usually offer higher yields than shorter maturity bonds,
other factors (including credit quality) being equal.
Because the fixed income funds' benchmarks have intermediate-term average
weighted maturities, the funds are subject to moderate to high levels of
interest rate risk, as is that portion of the Multi-Asset Fund normally
invested in bonds.
Prepayment Risk. Prepayment risk is the possibility that, during periods
of declining interest rates, higher-yielding securities with optional
prepayment rights will be repaid before scheduled maturity, and a fund will
be forced to reinvest the unanticipated payments at lower interest rates.
Debt obligations that can be prepaid (including most mortgage-backed
securities) will not rise as much in market value as other bonds when
interest rates fall.
Credit Risk. Credit risk is the risk that an issuer of securities will be
unable to make payments of interest or principal. The credit risk assumed
by a fund is a function of the credit quality of its underlying securities.
Event Risk. Event risk is the risk that corporate debt securities may
suffer a substantial decline in credit quality and market value due to a
corporate restructuring. Corporate restructurings, such as mergers,
leveraged buyouts, takeovers, or similar events, are often financed by a
significant increase in corporate debt. As a result of the added debt
burden, the credit quality and market value of a firm's existing debt
securities may decline significantly. While event risk may be high for
certain securities held by the funds, event risk for each fund in the
aggregate is low because of the number of issues held by each fund.
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Policy Implementation and Risks continued
Bank Obligations. Each fund may invest in obligations of domestic and foreign
banks, including time deposits, certificates of deposit, bankers' acceptances,
bank notes, deposit notes, Eurodollar time deposits, Eurodollar certificates of
deposit, variable rate notes, loan participations, variable amount master demand
notes, and custodial receipts.
1. Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate.
2. Certificates of deposit are negotiable short-term obligations issued by
commercial banks or savings and loan associations against funds deposited in
the issuing institution.
3. Variable rate certificates of deposit are certificates of deposit on which
the interest rate is adjusted periodically prior to the stated maturity based
upon a specified market rate.
4. A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction
(to finance the import, export, transfer, or storage of goods).
Foreign Bank Obligations. Obligations of foreign banks involve somewhat
different investment risks than obligations of US banks. Their liquidity could
be impaired because of future political and economic developments; they may be
less marketable than comparable obligations of United States banks; a foreign
jurisdiction might impose withholding taxes on interest income payable on these
obligations; foreign deposits may be seized or nationalized; foreign
governmental restrictions such as exchange controls may be adopted that might
adversely affect the payment of principal and interest on those obligations; and
the selection of those obligations may be more difficult because there may be
less publicly available information concerning foreign banks or the accounting,
auditing, and financial reporting standards, practices, and requirements
applicable to foreign banks may differ from those applicable to United States
banks. Foreign banks generally are not subject to examination by any United
States government agency or instrumentality. Also, commercial banks located in
some foreign countries combine commercial banking and diversified securities
activities, thus increasing the risks of their operations.
Corporate Debt Securities. Corporate debt securities of domestic and foreign
issuers include corporate bonds, debentures, notes, commercial paper, medium-
term notes, variable rate notes, and other similar corporate debt instruments.
The funds will invest only in those securities that are rated at least "BBB" by
S&P or "Baa" by Moody's or determined by FAI or the Money Managers to be of
similar creditworthiness. Bonds rated in these categories are generally
described as investment-grade obligations.
Index Notes, Currency Exchange-Related Securities, and Similar Securities. Each
fund may purchase notes whose principal amount and/or interest payments may vary
in response to the change (if any) in specified exchange rates, commodities
prices, or stock index levels. Currency-indexed obligations are securities
whose purchase price and interest and principal payments are denominated in a
foreign currency. The amount of principal payable by the issuer at maturity
varies according to the change (if any) in the exchange rate between two
specified currencies during the period from the instrument's issuance date to
its maturity date. A fund may hedge the currency in which the obligation is
denominated (or effect cross-hedges against other currencies) against a decline
in the US dollar value of the investment. Each fund may also purchase principal
exchange rate-linked securities and performance-indexed commercial paper. Each
fund will purchase such indexed obligations to generate current income or for
hedging purposes and will not speculate in such obligations.
Other Foreign Currency Exchange-Related Securities. Securities may be
denominated in the currency of one nation although issued by a governmental
entity, corporation, or financial institution of another nation. For example, a
fund may invest in a British pound sterling-denominated obligation issued by a
United States corporation.
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Policy Implementation and Risks continued
Primary Risks. Such investments involve credit risks associated with the
issuer and currency risks associated with the currency in which the
obligation is denominated. A fund's decision to invest in any foreign
currency exchange-related securities is based on the same general criteria
applicable to debt securities, including the fund's minimum ratings and
investment quality criteria, with the additional element of foreign
currency exchange rate exposure added to FAI's or the Money Manager's
analysis of interest rates, issuer risk, and other factors.
Foreign Government and International and Supranational Agency Debt Securities.
Obligations of foreign governmental entities include those issued or guaranteed
by foreign governmental entities with taxing powers and those issued or
guaranteed by international or supranational entities. These obligations may or
may not be supported by the full faith and credit of a foreign government or
several foreign governments. Examples of international and supranational
entities include the International Bank for Reconstruction and Development
("World Bank"), the European Steel and Coal Community, the Asian Development
Bank, the European Bank for Reconstruction and Development, and the Inter-
American Development Bank. The governmental shareholders usually make initial
capital contributions to the supranational entity and in many cases are
committed to make additional capital contributions if the supranational entity
is unable to repay its borrowings.
Loan Participations. A loan participation is an interest in a loan to a US
corporation (the "corporate borrower") which is administered and sold by an
intermediary bank. The borrower in the underlying loan will be deemed to be the
issuer of the participation interest except to the extent the fund derives its
rights from the intermediary bank which sold the loan participation. Such loans
must be to issuers in whose obligations a fund may invest. Any participation
purchased by a fund must be sold by an intermediary bank in the United States
with assets exceeding $1 billion.
Primary Risks. Because the bank issuing a loan participation does not
guarantee the participation in any way, the participation is subject to the
credit risks associated with the underlying corporate borrower. In
addition, it may be necessary, under the terms of the loan participation,
for a fund to assert its rights against the underlying corporate borrower
through the issuing bank, in the event that the underlying corporate
borrower should fail to pay principal and interest when due. Thus, the
fund could be subject to delays, expenses, and risks which are greater than
those which would have been involved if the fund had purchased a direct
obligation of the borrower. Moreover, under the terms of the loan
participation, the fund may be regarded as a creditor of the issuing bank
(rather than of the underlying corporate borrower), so that the fund also
may be subject to the risk that the issuing bank may become insolvent.
Further, in the event of the bankruptcy or insolvency of the corporate
borrower, the loan participation might be subject to certain defenses that
can be asserted by a borrower as a result of improper conduct by the
issuing bank. The secondary market, if any, for these loan participation
interests is limited, and any such participation purchased by a fund will
be treated as illiquid until the board of directors determines that a
liquid market exists for such participations. Loan participations will be
valued at their fair market value as determined by procedures approved by
the board of directors.
Lower-Rated Debt Securities. Each fund may own debt securities of all grades,
including both rated and unrated securities, provided however that not more than
5% of the Short-Term Fund and not more than 10% of the other funds may be
invested in securities that are rated below investment grade. Money Managers of
these funds will be obligated to liquidate, in a prudent and orderly manner,
debt securities whose ratings fall below investment grade if the result of such
downgrades is that these limitations are exceeded. "Investment grade" means a
rating of:
1. for securities, "BBB" or better by S&P or "Baa" or better by Moody's,
2. for bank obligations, "B" or better by Thomson Bankwatch,
3. for commercial paper, "A-1" or better by S&P or "Prime-1" or better by
Moody's, and
4. for foreign bank obligations, similar ratings by IBCA Ltd.
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Policy Implementation and Risks continued
See Appendix B for a description of security ratings.
Primary Risks. In addition to the risk of default, the market values of
lower-rated debt securities tend to reflect individual corporate
developments (or, in the case of lower-rated securities of foreign
governments, governmental developments) to a greater extent than do higher-
rated securities, which react primarily to fluctuations in the general
level of interest rates, and lower-rated securities tend to be more
sensitive to general economic conditions than are higher-rated securities.
Mortgage-Backed Debt Securities. Mortgage-backed securities are securities
which represent ownership interests in, or are debt obligations secured entirely
or primarily by, "pools" of residential or commercial mortgage loans or other
mortgage-backed securities (the "Underlying Assets"). The two most common forms
are:
1. mortgage pass-throughs, which represent ownership interests in the Underlying
Assets. Principal repayments and interest on the underlying mortgage loans
are distributed monthly to holders.
2. collateralized mortgage obligations (CMO's), which represent debt obligations
secured by the Underlying Assets.
Principal repayments and interest payments on the underlying mortgage loans, and
any reinvestment income thereon, provide the funds to pay interest and
principal.
Certain mortgaged-backed securities represent an undivided fractional interest
in the entirety of the Underlying Assets (or in a substantial portion of the
Underlying Assets, with additional interests junior to that of the mortgage-
backed security) and thus have payment terms that closely resemble the payment
terms of the Underlying Assets.
In addition, many mortgage-backed securities are issued in multiple classes.
Each class, often referred to as a "tranche," is issued at a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Underlying Assets may cause the security to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on all or most classes on a periodic basis,
typically monthly or quarterly. The principal of and interest on the Underlying
Assets may be allocated among the several classes in many different ways. In a
relatively common structure, payments of principal (including any principal
prepayments) on the Underlying Assets are applied to the classes in the order of
their respective stated maturities so that no payment of principal will be made
on any class until all other classes having an earlier stated maturity have been
paid in full.
Mortgage-backed securities are typically backed by a pool of Underlying Assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on Underlying Assets to make payments, such
securities may contain elements of credit support. Such credit support falls
into two categories: (1) liquidity protection and (2) protection against losses
resulting from ultimate default by an obligor on the Underlying Assets.
Liquidity protection refers to the provision of advances, usually by the entity
administering the Underlying Assets, to ensure that the receipt of payments on
the Underlying Assets occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures ultimate payment of obligations on at
least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies, or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction, or through a combination of such approaches. A fund will not pay
any additional fees for such credit support, although the existence of credit
support may increase the price of a security.
Governmental, government-related, and private entities may create new types of
mortgage-backed securities offering asset pass-through and asset-collateralized
investments in addition to those described above. As such new types of
mortgage-related securities are developed and offered to investors, each fund
will, consistent with its investment objectives, policies, and quality
standards, consider whether such investments are appropriate.
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Policy Implementation and Risks continued
The duration of a mortgage-backed security, for purposes of a fund's average
duration restrictions, is computed based upon the expected average life of that
security.
Primary Risks. Prepayments on asset-backed debt securities usually
increase with falling interest rates and decrease with rising interest
rates; furthermore, prepayment rates are influenced by a variety of
economic and social factors. In general, the collateral supporting non-
mortgage asset-backed securities is of shorter maturity than mortgage loans
and is less likely to experience substantial prepayments. In addition to
prepayment risk, the obligors of the Underlying Assets may default on their
payments, creating delays or loss of principal.
Non-mortgage asset-backed securities involve certain risks not present in
mortgage-backed securities. Most important, these securities do not have
the benefit of a security interest in Underlying Assets. Credit card
receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of
which give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of automobile
receivables permit the servicers to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another
party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical
debt issue, and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have an effective
security interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these
securities.
Some forms of asset-backed securities are relatively new forms of
investments. Although each fund will only invest in asset-backed securities
believed to be liquid, because the market experience in certain of these
securities is limited, the market's ability to sustain liquidity through
all phases of a market cycle may not have been tested.
Municipal Debt Securities. Municipal debt securities may include such
instruments as tax anticipation notes, revenue anticipation notes, and bond
anticipation notes. Municipal notes are issued by state and local governments
and public authorities as interim financing in anticipation of tax collections,
revenue receipts, or bond sales. Municipal bonds, which may be issued to raise
money for various public purposes, include general obligation bonds and revenue
bonds. General obligation bonds are backed by the taxing power of the issuing
municipality and are considered the safest type of bonds. Revenue bonds are
backed by the revenues of a project or facility such as the tolls from a toll
bridge. "Private activity" bonds, including industrial development revenue
bonds, are a specific type of revenue bond backed by the credit and security of
a private user. Revenue bonds are typically considered to have more potential
risk than general obligation bonds.
Municipal obligations can have floating, variable, or fixed rates. Floating and
variable rate obligations generally entail less interest rate risk than fixed
rate obligations. Variable and floating rate obligations usually carry rights
that permit a fund to sell them at par value plus accrued interest upon short
notice. The issuers or financial intermediaries providing rights to sell may
support their ability to purchase the obligations by obtaining credit with
liquidity supports. These may include lines of credit and letters of credit,
which will ordinarily be irrevocable, both of which are issued by domestic banks
or foreign banks which have a branch, agency, or subsidiary in the United
States. When considering whether an obligation meets a fund's quality
standards, FAI and the Money Managers will look at the creditworthiness of the
party providing the right to sell as well as the quality of the obligation
itself.
The interest on private activity bonds is an item of tax preference for purposes
of the federal alternative minimum tax. Fund distributions which are derived
from interest on municipal securities are taxable to members in the same manner
as distributions derived from interest on taxable debt securities.
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Policy Implementation and Risks continued
Securities Denominated in Multi-National Currency Units or More than One
Currency. An illustration of a multi-national currency unit is the Euro, whose
value is based on a "basket" consisting of specified amounts of European
currencies. The specific amounts of currencies comprising the Euro may be
adjusted by the Council of Ministers of the European Union to reflect changes in
relative values of the underlying currencies. FAI and the Money Managers do not
believe that such adjustments will adversely affect holders of Euro-denominated
obligations or the marketability of such securities. European supranational
entities, in particular, issue Euro-denominated obligations.
US Treasury and US Government Agency Securities. US government securities
include instruments issued by the US Treasury, including bills, notes, and
bonds. These instruments are direct obligations of the US government and, as
such, are backed by the full faith and credit of the United States. They differ
primarily in their interest rates, maturities, and issuance dates. Other US
government securities include securities issued by instrumentalities of the US
government, such as the Government National Mortgage Association ("GNMA"), which
are also backed by the full faith and credit of the United States. US
government Agency Securities are instruments issued by instrumentalities
established or sponsored by the US government, such as the Student Loan
Marketing Association ("SLMA"), the Federal National Mortgage Association
("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC"). While these
securities are issued, in general, under the authority of an Act of Congress,
the US government is not obligated to provide financial support to the issuing
instrumentalities.
Variable Amount Master Demand Notes. Variable amount master demand notes permit
the investment of fluctuating amounts at varying rates of interest pursuant to a
direct arrangement between a fund (as lender) and the borrower. These notes are
not transferable, nor are they rated ordinarily by either Moody's or S&P.
Zero Coupon Securities and Custodial Receipts. In addition to securities issued
directly by the US Treasury, zero coupon securities include US Treasury bonds or
notes whose unmatured interest coupons and receipts for their principal have
been separated by their holder, typically a custodian bank or investment
brokerage firm. Once "stripped" or separated, the principal and coupons are
sold separately. The principal, or "corpus," is sold at a deep discount because
the buyer receives only the right to receive a future fixed payment and does not
receive any rights to periodic interest payments. The coupons may be sold
separately or grouped with other coupons with like maturity dates and sold in a
bundled form. Purchasers of stripped obligations acquire, in effect, discount
obligations that are economically identical to the zero coupon securities that
the Treasury sells itself.
A number of securities firms and banks have stripped the interest coupons and
receipts and then resold them in custodial receipt programs with a number of
different names, including "Treasury Income Growth Receipts" ("TIGRS") and
"Certificate of Accrual on Treasuries" ("CATS"). The underlying US Treasury
bonds and notes themselves are held in book-entry form at the Federal Reserve
Bank or, in the case of bearer securities (i.e., unregistered securities which
are owned ostensibly by the bearer or holder thereof), in trust on behalf of the
owners thereof. Counsels to the underwriters have issued the opinion that, for
Federal tax and securities law purposes, purchasers of such certificates will
most likely be deemed the beneficial holders of the underlying US Treasury
securities.
Recently, the US Treasury has facilitated transfer of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry recordkeeping system. The Federal Reserve program as
established by the Treasury Department is known as "Separate Trading of
Registered Interest and Principal of Securities" ("STRIPS"). Under the STRIPS
program, a purchaser's beneficial ownership of zero coupon securities is
recorded directly in the book-entry recordkeeping system in lieu of holding
certificates or other evidences of ownership of the underlying US Treasury
securities.
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Policy Implementation and Risks continued
Derivative Securities
Futures Contracts. Each fund may enter into contracts for the purchase or sale
for future delivery (a "futures contract") of fixed income securities or foreign
currencies or based on financial indices including any index of common stocks,
US government securities, foreign government securities, or corporate debt
securities. A fund may enter into futures contracts that are based on debt
securities that are backed by the full faith and credit of the US government,
such as long-term US Treasury bonds, Treasury notes, GNMA-modified pass-through
mortgage-backed securities, and three-month US Treasury bills. Each fund also
may enter into futures contracts based on securities that would be eligible
investments for such fund and denominated in currencies other than the US
dollar.
US futures contracts have been designed by exchanges which have been designated
as "contracts markets" by the CFTC and must be executed through a futures
commission merchant or brokerage firm which is a member of the relevant contract
market. Futures contracts trade on a number of exchange markets and, through
their clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange.
Futures contracts may be used as both hedging and income-enhancement strategies.
As an example of a hedging transaction, a Money Manager holding a portfolio of
equity securities and anticipating a near-term market decline might sell S&P 500
futures to obtain prompt protection pending an orderly portfolio liquidation.
If the decline occurs, gains on the futures contract will offset at least in
part the loss on the portfolio; if the Money Manager is wrong and the market
rises, the loss on the futures contract will offset gains on the portfolio.
Although futures contracts by their terms call for actual delivery or
acquisition of the underlying asset, in most cases the contractual obligation is
fulfilled before the date of the contract by entering into an offsetting futures
contract with delivery in the same month. Such a transaction, which is effected
through a member of an exchange, cancels the obligation to make or take delivery
of the securities or currency. Since all transactions in the futures market are
made, offset, or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, a fund will incur brokerage fees when it
purchases or sells futures contracts.
At the time a futures contract is purchased or sold, the fund must allocate cash
or securities as a deposit payment ("initial margin"). It is expected that the
initial margin on US exchanges may range from approximately 3% to approximately
15% of the value of the securities or commodities underlying the contract.
Under certain circumstances, however, such as periods of high volatility, the
fund may be required by an exchange to increase the level of its initial margin
payment. It is also possible that initial margin requirements may be increased
in the future by regulators. An outstanding futures contract is valued daily
and the payment in cash of "variation margin" will be required, a process known
as "marking to the market." Each day the fund will be required to provide (or
will be entitled to receive) variation margin in an amount equal to any decline
(in the case of a long futures position) or increase (in the case of a short
futures position) in the contract's value since the preceding day.
Primary Risks. Futures contracts entail special risks. Among other
things, the ordinary spreads between values in the cash and futures
markets, due to differences in the character of these markets, are subject
to distortions related to (1) investors' obligations to meet additional
variation margin requirements, (2) decisions to make or take delivery
rather than to enter into offsetting transactions, and (3) the difference
between margin requirements in the securities markets and margin deposit
requirements in the futures market. The possibility of such distortions
means that a correct forecast of general market, foreign exchange rate, or
interest rate trends still may not result in a successful transaction.
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Policy Implementation and Risks continued
If predictions about the general direction of securities market movements,
foreign exchange rates, or interest rates are incorrect, a fund's overall
performance would be poorer than if it had not entered into any such
contracts or purchased or written options thereon. For example, if a fund
had hedged against the possibility of an increase in interest rates that
would adversely affect the price of debt securities held in its portfolio
and interest rates decreased instead, the fund would lose part or all of
the benefit of the increased value of its assets that it had hedged because
it would have offsetting losses in its futures positions. In addition,
particularly in such situations, if the fund has insufficient cash, it may
have to sell assets from its portfolio to meet daily variation margin
requirements. Any such sale of assets may or may not be at increased
prices reflecting the rising market. Consequently, the fund may have to
sell assets at a time when it may be disadvantageous to do so.
A fund's ability to establish and close out positions in futures contracts
and options on futures contracts depends on the existence of a liquid
market. Although a fund typically will purchase or sell only those futures
contracts and options thereon for which there appears to be a liquid
market, there is no assurance that a liquid market on an exchange will
exist for any particular futures contract or option thereon at any future
date. If it is not possible to effect a closing transaction in a contract
at a satisfactory price, the fund would have to make or take delivery under
the futures contract or, in the case of a purchased option, exercise the
option. In the case of a futures contract that a fund has sold and is
unable to close out, the fund would be required to maintain margin deposits
on the futures contract and to make variation margin payments until the
contract is closed.
Under certain circumstances, exchanges may establish daily limits in the
amount that the price of a futures contract or related option contract may
vary up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that
day at a price beyond that limit. The daily limit governs only price
movements during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of
unfavorable positions. This situation could potentially persist for
several consecutive trading days.
Risks of Foreign Currency Futures Contracts. Buyers and sellers of foreign
currency futures contracts are subject to the same risks that apply to
futures generally. In addition, there are risks associated with foreign
currency futures contracts similar to those associated with forward
contracts on foreign currencies. Further, settlement of a foreign currency
futures contract must occur within the country issuing the underlying
currency. Thus, a fund must accept or make delivery of the underlying
foreign currency in accordance with any US or foreign restrictions or
regulations regarding the maintenance of foreign banking arrangements by US
residents and may be required to pay any fees, taxes, or charges associated
with such delivery which are assessed in the country of the underlying
currency.
Options on Futures Contracts. The purchase of a put or call on a futures
contract is similar in some respects to the purchase of a put or call on an
individual security or currency. Depending on the option's price compared to
either the price of the futures contract upon which it is based or the price of
the underlying asset, it may or may not be less risky than ownership of the
futures contract or the underlying assets. A fund may purchase options on
futures contracts for the same purposes as futures contracts themselves, i.e.,
as a hedging or income-enhancement strategy.
Writing a call option on a futures contract constitutes a partial hedge against
declining prices of the underlying asset which is deliverable upon exercise of
the futures contract. If the futures price at expiration of the option is below
the exercise price, a fund will retain the full amount of the option premium,
which provides a partial hedge against any decline in the fund's portfolio
holdings.
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Policy Implementation and Risks continued
Writing a put option on a futures contract constitutes a partial hedge against
increasing prices of the underlying asset which is deliverable upon exercise of
the futures contract. If the futures price at expiration of the option is
higher than the exercise price, the fund will retain the full amount of the
option premium, which provides a partial hedge against any increase in the price
of securities the fund intends to purchase. If a put or call option a fund has
written is exercised, the fund will incur a loss that will be reduced by the
amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, a fund's losses from existing options on futures
may to some extent be reduced or increased by changes in the value of portfolio
securities.
Restrictions on the Use of Futures Contracts and Options on Futures Contracts.
CFTC regulations applicable to the funds require that all of a fund's positions
in futures and options on futures constitute bona fide hedging transactions,
except that a transaction need not constitute a bona fide hedging transaction
and may be entered into for other purposes if, immediately thereafter, the sum
of the amount of initial margin deposits on the fund's existing futures
positions and premiums paid for related options does not exceed 5% of the value
of the fund's total assets.
Primary Risks. The amount of risk a fund assumes when it purchases an
option on a futures contract is the premium paid for the option plus
related transaction costs. In addition to correlation risk, the purchase
of an option also entails the risk that changes in the value of the
underlying futures contract will not be fully reflected in the value of the
option purchased.
Options on foreign currency futures contracts may involve additional
liquidity risk. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions in such
options is subject to the maintenance of a liquid secondary market.
Therefore, a fund will not purchase or write options on foreign currency
futures contracts unless and until, in FAI's or the Money Manager's
opinion, the market for such options has developed sufficiently that the
risks of such options are not greater than the risks of the underlying
foreign currency futures contracts. Compared to the purchase or sale of
foreign currency futures contracts, the purchase of call or put options
thereon involves less potential market risk to the fund because the maximum
amount at risk is the premium paid for the option (plus transaction costs).
However, there may be circumstances when a position in options on foreign
currency futures contracts would result in a loss whereas a position in the
underlying futures contract would not, such as when there is no movement in
the price of the underlying currency or futures contract.
Options on Foreign Currencies. Each fund may purchase and sell (or write) put
and call options on foreign currencies to protect against a decline in the US
dollar-equivalent value of its portfolio securities or payments due thereon or a
rise in the US dollar-equivalent cost of securities that it intends to purchase.
A foreign currency put option grants the holder the right, but not the
obligation, to sell at a future date a specified amount of a foreign currency at
a predetermined price. Conversely, a foreign currency call option grants the
holder the right, but not the obligation, to purchase at a future date a
specified amount of a foreign currency at a predetermined price.
Instead of purchasing a put option when it anticipates a decline in the dollar
value of foreign securities due to adverse fluctuations in exchange rates, a
fund could write a call option on the relevant currency. If the expected
decline occurs, it is likely that the option will not be exercised, and the
decrease in value of portfolio securities will be offset by the amount of the
premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of foreign securities to be acquired, a fund could
write a put option on the relevant currency. If exchange rates move as
expected, the put will expire unexercised, and the fund will have hedged such
increased costs up to the amount of the premium.
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Policy Implementation and Risks continued
Primary Risks. As in the case of other types of options, the benefit to a
fund from the purchase of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In addition, where
currency exchange rates do not move in the direction or to the extent
anticipated, a fund could sustain losses on transactions in foreign
currency options that would require them to forego a portion or all of the
benefits of advantageous changes in such rates.
The writing of a foreign currency option constitutes only a partial hedge
up to the amount of the premium and only if exchange rates move in the
expected direction. If this movement does not occur, the option may be
exercised and the fund would be required to purchase or sell the underlying
currency at a loss which may not be fully offset by the amount of the
premium. Through the writing of options on foreign currencies, a fund also
may be required to forego all or a portion of the benefits that might
otherwise have been obtained from favorable movements in exchange rates.
Options on Securities. The funds may purchase and sell both exchange-traded and
OTC options. Currently, although many options on equity securities and
currencies are exchange-traded, options on debt securities are primarily traded
in the over-the-counter market.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed. This
clearing organization, in effect, guarantees every exchange-traded option
transaction. In contrast, over-the-counter options are contracts between a fund
and its counterparty with no clearing organization guarantee. Thus, when the
fund purchases OTC options, it relies on the dealer from which it purchased the
OTC option to make or take delivery of the securities underlying the option.
The writer of an exchange-traded option that wishes to terminate its obligation
may do so by a "closing purchase transaction," i.e., buying an option of the
same series as the option previously written. Options of the same series are
options on the same underlying security or currency with the same expiration
date and exercise price. Likewise, the holder of an option may liquidate a
position by a "closing sale transaction," i.e., selling an option of the same
series as the option previously purchased. In general, an OTC option may be
closed out prior to expiration only by entering into an offsetting transaction
with the same dealer.
A fund's transactions in options on securities and securities indices are
governed by the rules and regulations of the respective exchanges, boards of
trade, or other trading facilities on which the options are traded.
The funds will write only "covered" options. An option is covered if the fund
owns an offsetting position in the underlying security or maintains cash, US
government securities, or other liquid high-grade debt obligations with a value
sufficient at all times to cover its obligations.
Primary Risks. The value of an option reflects, among other things, the
current market price of the underlying currency or security, the time
remaining until expiration, the relationship of the exercise price to the
market price, the historical price volatility of the underlying currency or
security, and interest rates. Successful use of options depends in part on
the ability of FAI or the Money Manager to forecast future market
conditions. Options purchased by a fund that expire unexercised have no
value, and therefore a loss will be realized in the amount of the premium
paid plus related transaction costs.
The writer of a call option is obligated, upon its exercise, to sell the
underlying securities or currency to the purchaser at the exercise price,
thus losing the potential for gain on the underlying securities or currency
in excess of the exercise price of the option during the period that the
option is open. The writer of a put option is obligated, upon its
exercise, to purchase the underlying securities or currency underlying the
option at the exercise price. A writer might, therefore, be obligated to
purchase the underlying securities or currency for more than their current
market price. Any losses are partially offset by the premium, which the
writer retains regardless of whether the option is exercised.
<PAGE>
Policy Implementation and Risks continued
A fund's activities in the options markets may result in higher portfolio
turnover rates and additional brokerage costs. However, commissions and
transaction costs of such hedging activities may be less than those
associated with purchases and sales of the underlying securities or foreign
currencies.
Risks of Exchange-Traded Options. A closing purchase or a closing sale
transaction on an exchange-traded option can be made only where a secondary
market exists for an option of the same series. For a number of reasons, a
secondary market may not exist for options held by a fund, or trading in
such options might be limited or halted by the exchange, thus making it
impossible to effect closing transactions in particular options the fund
owns. As a result, the fund would have to exercise the options in order to
realize any profit. If the fund is unable to effect a closing purchase
transaction in a secondary market in an option which the fund has written,
it will not be able to sell the underlying security or currency until the
option expires or deliver the underlying security or currency upon exercise
or otherwise cover its position.
Risks of OTC Options. Exchange-traded options generally have a continuous
liquid market, whereas OTC options may not have one. A fund usually will
be able to realize the value of an OTC option it has purchased only by
exercising it or reselling it to the dealer who issued it. Similarly, when
the fund writes an OTC option, it generally will be able to close it out
prior to expiration only by entering into a closing purchase transaction
with the same dealer. Although a fund will enter into OTC options only
with dealers who agree to enter into and who are expected to be capable of
entering into closing transactions with the fund, there can be no assurance
that the fund will be able to liquidate an OTC option at a favorable price
at any time prior to expiration. Until the fund is able to effect a
closing purchase transaction in a covered OTC call option the fund has
written, it will not be able to liquidate securities used as cover until
the option expires or is exercised or different cover is substituted. The
inability to enter into a closing purchase transaction may result in
material losses to the fund, for example, by limiting its ability to sell
the underlying security while the option is outstanding. This may impair
the fund's ability to sell a portfolio security at a time when such a sale
might be advantageous. In addition, if the counterparty becomes insolvent,
the fund may be unable to liquidate an OTC option. Failure by the dealer
to take delivery of the underlying securities would result in the loss of
the premium paid by the fund as well as the loss of the expected benefit of
the transaction. The funds will only purchase options from dealers
determined to be creditworthy.
Risks of Foreign Currency Options. There is no systematic reporting of
last sale information for foreign currencies or any regulatory requirement
that quotations available through dealers or other market sources be firm
or revised on a timely basis. Quotation information available is
representative of very large transactions in the interbank market and thus
may not reflect relatively smaller transactions (i.e., less than $1
million) where rates may be less favorable. The interbank market in
foreign currencies is a global, around-the-clock market. To the extent
that the US options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place
in the underlying markets which cannot be reflected in the options market
until they reopen. Foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those that may
be involved in the use of foreign currency options. Investors may be at a
disadvantage by having to deal in an odd lot market (usually consisting of
transactions of less than $1 million) for the underlying foreign currencies
at prices that are less favorable than for round lots.
Interest Rate and Currency Swaps. An interest rate swap is an agreement to
exchange the interest generated by a fixed income instrument held by a fund for
the interest generated by a fixed income instrument held by a counterparty, such
as an exchange of fixed rate payments for floating rate payments. Currency
swaps involve the exchange of respective rights to make or receive payments in
specified currencies. The value of the positions underlying such transactions
may not represent more than 15% of a fund's assets. The fund will maintain a
segregated account in the amount of the accrued excess, if any, of its
obligations over its entitlements with respect to each swap.
<PAGE>
Policy Implementation and Risks continued
Primary Risks. Swaps are available only from a limited number of
counterparties and involve counterparty credit risk.
When-Issued and Forward Commitment Securities. Each fund may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices. In such transactions, instruments are bought with
payment and delivery taking place in the future but no later than 120 days after
the trade date. No income accrues prior to delivery. At the time a fund enters
into such a transaction, it must establish a segregated account consisting of
acceptable assets equal to the value of the when-issued or forward commitment
securities. When a forward commitment purchase is made to close a forward
commitment sale, or vice versa, the difference between the two may be netted for
segregation purposes until settlement date.
Forward commitments, or delayed deliveries, are deemed to be outside the normal
corporate settlement structure.
Primary Risks. The value of the security on the delivery date may be less
than its purchase price, representing a loss for the fund. These
transactions also involve counterparty risk. If the other party fails to
perform or becomes insolvent, any accrued profits may not be available to
a fund.
Synthetic Securities. The Bond and Short-Term Funds may create synthetic
securities by combining investments in securities denominated in a given
currency with forward contracts in order to achieve desired credit and currency
exposures. To construct a synthetic security, a fund enters into a forward
contract for the purchase of a given currency (the "Purchase Currency") at a
future date against payment in another currency (the "Sale Currency").
Simultaneously, the fund purchases a security denominated in the Sale Currency
with a maturity date and amount payable at maturity that coincides with the
delivery date and amount of the forward contract. The overall effect of these
transactions is similar to the purchase of a security denominated in the
Purchase Currency. The forward contract may increase or decrease the return on
the investment in the security depending on exchange rate movements between the
purchase and maturity dates.
Primary Risks. The primary risks associated with synthetic securities
arise from:
1. the fluctuation of the exchange rates between the Purchase and Sale
Currencies between purchase and maturity dates,
2. the matching of the principal and interest from the security with the
related forward contract, and
3. the credit risks associated with the issuer of the security and the
forward contract counterparties.
In addition, to the extent a synthetic security is unwound prior to the
maturity of the security, the fund is exposed to market risk with respect
to the value of the security and currency risk with respect to the forward
contract.
Other Instruments
Convertible Securities. A convertible security is a fixed income security (a
bond or preferred stock) which may be converted at a stated price into a certain
quantity of the common stock of the same or a different issuer. Through their
conversion feature, these securities provide an opportunity to participate in
advances in the price of the common stock into which the security may be
converted.
Primary Risks. A convertible security entails market risk in that its
market value depends in part on the price of the underlying common stock.
Convertible securities also entail greater credit risk than the issuer's
non-convertible senior debt securities to which they are usually
subordinated.
<PAGE>
Policy Implementation and Risks continued
Illiquid and Restricted Securities. Illiquid assets are investments that are
difficult to sell at the price at which such assets are valued by the fund
within seven days of the date of the decision to sell them. They may include:
1. over-the-counter options,
2. repurchase agreements, time deposits, and dollar roll transactions maturing
in more than seven days,
3. loan participations,
4. securities without readily available market quotations, including interests
in private commingled investment vehicles in which a fund might invest, and
5. certain restricted securities.
Primary Risks. Due to the absence of an organized market for such
securities, the market value of illiquid securities used in calculating
fund net asset values for purchases and redemptions can diverge
substantially from their true value. Illiquid securities are generally
subject to legal or contractual restrictions on resale, and their forced
liquidation to meet redemption requests could produce large losses.
The staff of the SEC has taken the position that purchased OTC options and the
assets used as cover for written OTC options are illiquid securities.
Therefore, each fund's investment policy states that typically it will not
purchase or sell OTC options if, as a result of such transaction, the sum of:
1. the market value of OTC options currently outstanding held by the fund,
2. the market value of the underlying securities covered by OTC call options
currently outstanding sold by the fund, and
3. margin deposits on the fund's existing OTC options on futures contracts
exceed 15% of the net assets of the fund, taken at market value, together
with all other assets of the fund that are illiquid or are not otherwise
readily marketable.
This policy as to OTC options is not a fundamental policy of the funds and may
be amended by the directors of TIP without the approval of TIP's or a fund's
members. However, TIP will not change or modify this policy prior to a change
or modification by the SEC staff of its position.
Securities Denominated in Multi-National Currency Units or More than One
Currency. Each fund may invest in securities denominated in a multi-national
currency unit, such as the Euro, which is a "basket" consisting of specified
amounts of the currencies of certain member states of the European Union. Each
fund may also invest in securities denominated in the currency of one nation
although issued by a governmental entity, corporation, or financial institution
of another nation.
Commingled Investment Vehicles. The funds may, subject to limitations, invest a
portion of their assets in securities issued by other commingled investment
vehicles whose expected returns are, in the judgment of FAI's directors,
superior to those of Money Managers that the funds might employ directly.
Other Registered Investment Companies. A fund may invest in the shares of
another registered investment company. The funds will make such purchases in
the open market and only when no commission or profit beyond the customary
broker's commission results. As a shareholder in a registered investment
company, the fund will bear its ratable share of that investment company's
expenses, including its advisory and administration fees. The funds will not
purchase shares of open-end companies without having any duplicative
management fees waived.
<PAGE>
Policy Implementation and Risks continued
Closed-End Investment Companies. Investments in closed end funds may involve
the payment of premiums above the net asset value of the issuers' portfolio
securities. These are subject to limitations under the 1940 Act and are
constrained by market availability (e.g., these investment companies are often
"closed end" companies that do not offer to redeem their shares directly).
The funds do not intend to invest in such investment companies unless, in the
judgment of FAI's directors, the potential benefits of such investments
justify the payment of any applicable premium or sales charge. For instance,
due to restrictions on direct investment by foreign entities in certain
emerging market countries, purchasing shares of other investment companies may
be the most practical or only manner in which the funds can invest in these
markets.
Private Investment Funds. FAI may invest a portion of a fund's assets in
securities issued by private investment funds. For example, FAI might elect
to invest a portion of a fund's assets in an investment partnership whose
manager FAI believes is especially skillful, but which is closed to new
separate accounts, is unwilling to manage assets directly on a fund's behalf,
or whose services can be purchased indirectly at a lower cost by investment in
securities issued by an existing partnership or other commingled investment
vehicle. As an investor in such a fund, a fund would bear its ratable share
of expenses and would be subject to its share of the management and
performance fees charged by such entity. Investment by a fund in the
securities of a private investment company is not subject to the 3% limitation
imposed on shares held by a fund in other registered investment companies but
is subject to the 15% limitation on illiquid securities.
Fund Transactions
The debt securities in which TIP invests are traded primarily in the over-the-
counter market by dealers who usually are acting as principals for their own
accounts. On occasion, securities may be purchased directly from the issuer.
The cost of securities purchased from underwriters includes an underwriting
commission or concession. Debt securities are traded on a net basis and
normally do not involve either brokerage commissions or transfer taxes. The
cost of executing transactions consists primarily of dealer spreads. In the
markets in which a fund buys and sells its assets and depending upon the size of
the transactions it executes, the spread between a security's bid and ask price
is typically below /1//32 of 1% of the value of the transaction, and often is
much less. The spread is not included in the expenses of a fund and therefore
is not subject to the expense cap; nevertheless, the incurrence of this spread,
ignoring the other intended positive effects of the transaction, will decrease
the total return of the fund. However, a fund will buy one asset and sell
another only if FAI or the Money Managers believe it is advantageous to do so
after considering the effects of the additional custodial charges and the spread
on the fund's total return.
Since costs associated with transactions in foreign securities are usually
higher than costs associated with transactions in domestic securities, the
funds' operating expense ratios can be expected to be higher than those of an
investment company investing exclusively in domestic securities.
The selection of a broker or dealer to execute portfolio transactions is usually
made by a Money Manager. In executing portfolio transactions and selecting
brokers or dealers, the principal objective is to seek the best overall terms
available to the fund, subject to specific directions from TIP or FAI.
Securities ordinarily are purchased in their primary markets, and a Money
Manager will consider all factors it deems relevant in assessing the best
overall terms available for any transaction, including:
1. the breadth of the market in the security,
2. the price of the security,
3. the financial condition and execution capability of the broker or dealer, and
4. the reasonableness of the commission, if any (for the specific transaction
and on a continuing basis).
<PAGE>
Fund Transactions continued
In addition, when selecting brokers or dealers and seeking the best overall
terms available, FAI and the Money Managers are authorized to consider the
"brokerage and research services" (as defined in Section 28(e) of the Securities
Exchange Act of 1934) provided to the funds, FAI, or to the Money Manager. FAI
and the Money Managers are authorized to cause the funds to pay a commission to
a broker or dealer who provides such brokerage and research services which is in
excess of the commission another broker or dealer would have charged for
effecting the transaction. TIP, FAI, or the Money Manager, as appropriate, must
determine in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided. Reasonableness will be
viewed in terms of that particular transaction or in terms of all the accounts
over which FAI or the Money Manager exercises investment discretion.
The funds* paid brokerage commissions as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1/1/99-12/31/99 1/1/98-12/31/98 1/1/97-12/31/97
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TIFF Multi-Asset Fund $ 629,767 $ 871,810 $ 1,062,969
- ------------------------------------------------------------------------------------------------------------------------
TIFF International Equity Fund $ 760,841 $ 364,681 $ 351,419
- ------------------------------------------------------------------------------------------------------------------------
TIFF Emerging Markets Fund $ 273,708 $ 268,489 $ 376,009
- ------------------------------------------------------------------------------------------------------------------------
TIFF US Equity Fund $ 615,968 $ 678,711 $ 355,548
- ------------------------------------------------------------------------------------------------------------------------
TIFF Short-Term Fund $ 3,254 - -
- ------------------------------------------------------------------------------------------------------------------------
TIFF Bond Fund $ 19,142 - -
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Because the US Equity Index, Government Bond Index, and Inflation-Linked Bond
Funds have not yet commenced operations, no brokerage fees have been paid.
Tax Considerations
The following summary of tax consequences does not purport to be complete. It
is based on US federal tax laws and regulations in effect on the date of this
Statement of Additional Information, which are subject to change by legislative
or administrative action.
Qualification as a Regulated Investment Company. Each fund intends to qualify
annually and elect to be treated as a regulated investment company ("RIC") under
the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
RIC, a fund must, among other things:
1. derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans and gains from the sale
or other disposition of securities or foreign currencies, or other income
(including gains from options, futures, or forward contracts) derived from
its business of investing in securities or foreign currencies (the
"Qualifying Income Requirement");
2. diversify its holdings so that, at the end of each quarter of the fund's
taxable year:
(a) at least 50% of the market value of the fund's assets is represented by
cash and cash items (including receivables), US government securities,
securities of other RICs, and other securities, with such other
securities of any one issuer limited to an amount not greater than 5% of
the value of the fund's total assets and not greater than 10% of the
outstanding voting securities of such issuer and
(b) not more than 25% of the value of the fund's total assets is invested in
the securities of any one issuer (other than US government securities or
the securities of other RICs); and
<PAGE>
Tax Considerations continued
3. distribute at least 90% of its investment company taxable income (which
includes, among other items, interest and net short-term capital gains in
excess of net long-term capital losses) and its net tax-exempt interest
income, if any.
The US Treasury Department has authority to promulgate regulations pursuant to
which gains from foreign currency (and options, futures, and forward contracts
on foreign currency) not directly related to a RIC's principal business of
investing in stocks and securities would not be treated as qualifying income for
purposes of the Qualifying Income Requirement. To date, such regulations have
not been promulgated.
If, for any taxable year, a fund does not qualify as a RIC, all of its taxable
income will be taxed to the fund at corporate rates. For each taxable year that
the fund qualifies as a RIC, it generally will not be subject to federal income
tax on that part of its investment company taxable income and net capital gains
(the excess of net long-term capital gain over net short-term capital loss) it
distributes to its members. In addition, to avoid a non-deductible 4% federal
excise tax, the fund must distribute during each calendar year at least 98% of
its ordinary income (not taking into account any capital gains or losses),
determined on a calendar year basis, at least 98% of its capital gains in excess
of capital losses, determined in general on an October 31 year-end basis, and
any undistributed amounts from previous years. Each fund intends to distribute
all of its net income and gains by automatically reinvesting such income and
gains in additional shares of the fund unless a member requests such
distributions to be paid in cash. Each fund will monitor its compliance with all
of the rules set forth in the preceding paragraph.
Tax Treatment of Distributions. Dividends paid out of the fund's investment
company taxable income will be taxable to the fund's members as ordinary income.
If a portion of a fund's income consists of dividends paid by US corporations, a
portion of the dividends paid by the fund may be eligible for the corporate
dividends-received deduction (assuming that the deduction is otherwise allowable
in computing a member's federal income tax liability). Distributions of any
net capital gains designated by the fund as capital gain dividends will be
taxable to the members as long-term capital gains, regardless of how long they
have held their fund shares, and are not eligible for the corporate dividends-
received deduction. Members receiving distributions in the form of additional
shares, rather than cash, will have a cash basis in each such share equal to the
net asset value of a share of the fund on the reinvestment date. A distribution
of an amount in excess of a fund's current and accumulated earnings and profits
will be treated by a member as a return of capital which is applied against and
reduces the member's basis in its fund shares. To the extent that the amount of
any such distribution exceeds the member's basis in its fund shares, the excess
will be treated as gain from a sale or exchange of the shares. A distribution
will be treated as paid on December 31 of the current calendar year if it is
declared by a fund in October, November, or December with a record date in such
a month and paid by the fund during January of the following calendar year.
Such distributions will be taxable to members in the calendar year in which the
distributions are declared, rather than in the calendar year in which the
distributions are received. Each fund will inform members of the amount and tax
status of all amounts treated as distributed to them not later than 60 days
after the close of each calendar year.
Tax Treatment of Share Sales. Upon the sale or other disposition of shares of a
fund or upon receipt of a distribution in complete liquidation of a fund, a
member usually will realize a capital gain or loss which will be long term or
short term, depending upon the member's holding period for the shares. Any loss
realized on the sale or exchange will be disallowed to the extent the shares
disposed of are replaced (including shares acquired pursuant to a dividend
reinvestment plan) within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case, the basis of
the shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by the member on a disposition of fund shares held by the member for
six months or less will be treated as a long-term capital loss to the extent of
any distributions of net capital gains deemed received by the member with
respect to such shares.
<PAGE>
Tax Considerations continued
Tax Treatment of Zero Coupon Securities. Investments by a fund in zero coupon
securities will result in income to the fund equal to a portion of the excess of
the face value of the securities over their issue price (the "original issue
discount") each year that the securities are held. This is the case even though
the fund receives no cash interest payments. This income is included in
determining the amount of income which the fund must distribute to maintain its
status as a RIC and to avoid the payment of federal income tax and the 4% excise
tax.
Tax Treatment of Hedging Transactions. The taxation of equity options and over-
the-counter options on debt securities is governed by the Code section 1234.
Option Sales. The premium received by a fund for selling a put or call option
is not included in income at the time of receipt. If the option expires, the
premium is a short-term capital gain to the fund. If the fund enters into a
closing transaction, the difference between the amount paid to close out its
position and the premium received is a short-term capital gain or loss. If a
call option written by a fund is exercised, thereby requiring the fund to sell
the underlying security, the premium will increase the amount realized upon the
sale of such security and any resulting gain or loss will be a capital gain or
loss and will be long term or short term depending upon the holding period of
the security.
Option Purchases. With respect to a put or call option purchased by a fund, if
the option is sold, any resulting gain or loss will be a capital gain or loss
and will be long term or short term, depending upon the holding period of the
option. If the option expires, the resulting loss is a capital loss and is long
term or short term, depending upon the holding period of the option. If the
option is exercised, the premium, in the case of a call option, is added to the
basis of the purchased security and, in the case of a put option, reduces the
amount realized on the underlying security in determining gain or loss.
Certain options, futures, and forward contracts in which a fund may invest are
"section 1256 contracts." Gains and losses on section 1256 contracts are
usually treated as 60% long-term and 40% short-term capital gains or losses
("60/40 treatment"), regardless of the fund's actual holding period for the
contract. Also, a section 1256 contract held by a fund at the end of each
taxable year (and generally, for the purposes of the 4% excise tax, on October
31 of each year) must be treated as if the contract had been sold at its fair
market value on that day ("mark to market treatment"), and any deemed gain or
loss on the contract is subject to 60/40 treatment. Foreign currency gains or
losses (discussed below) arising from section 1256 contracts may, however, be
treated as ordinary income or loss.
A fund's hedging transactions may result in "straddles" for federal income tax
purposes. The straddle rules may affect the character of gains or losses
realized by the fund. In addition, losses realized by a fund on positions that
are part of a straddle may be deferred under the straddle rules rather than
being taken into account in calculating the taxable income for the tax year in
which such losses are realized. Further, a fund may be required to capitalize,
rather than deduct currently, any interest expense on indebtedness incurred to
purchase or carry any positions that are part of a straddle. Because only a few
regulations pertaining to the straddle rules have been implemented, the tax
consequences to the funds for engaging in hedging transactions are not entirely
clear. Hedging transactions may increase the amount of short-term capital gain
realized by the funds which is taxed as ordinary income when distributed to
members.
A fund may make one or more of the elections available under the Code that are
applicable to straddles. If a fund makes any of the elections, the amount,
character, and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under some of the elections may
accelerate the recognition of gains or losses from the affected straddle
positions. As a result, the amount of fund income distributed to members and
taxed to them as ordinary income or long-term capital gains may be greater or
lesser as compared to the amount distributed by a fund that did not engage in
such hedging transactions.
<PAGE>
Tax Considerations continued
Tax Treatment of Short Sales. A fund will not realize gain or loss on the short
sale of a security until it closes the transaction by delivering the borrowed
security to the lender. Pursuant to Code section 1233, all or a portion of any
gain arising from a short sale may be treated as short-term capital gain,
regardless of the period for which the fund held the security used to close the
short sale.
Constructive Sales. Under certain circumstances, a fund may recognize gain from
a constructive sale of an "appreciated financial position" it holds if it enters
into a short sale, forward contract, or other transaction that substantially
reduces the risk of loss with respect to the appreciated position. In that
event, the fund would be treated as if it had sold and immediately repurchased
the property and would be taxed on any gain (but not loss) from the constructive
sale. The character of gain from a constructive sale would depend upon the
fund's holding period in the property. Loss from a constructive sale would be
recognized when the property was subsequently disposed of, and its character
would depend on the fund's holding period and the application of various loss
deferral provisions of the Code. Constructive sale treatment does not apply to
transactions closed in the 90-day period ending with the 30th day after the
close of the taxable year if certain conditions are met.
Tax Treatment of Partnership Investments. The current position of the Internal
Revenue Service generally is to treat a RIC, i.e., each fund, as owning its
proportionate share of the income and assets of any partnership in which it is a
partner in applying the Qualifying Income Requirement and the asset
diversification requirements set forth above for RICs. These requirements may
limit the extent to which the funds may invest in partnerships, especially in
the case of partnerships which do not primarily invest in a diversified
portfolio of stocks and securities.
Tax Treatment of Foreign Currency-Related Transactions. Gains or losses
attributable to fluctuations in exchange rates which occur between the time a
fund accrues receivables or payables denominated in a foreign currency and the
time the fund actually collects such receivables or pays such payables typically
are treated as ordinary income or ordinary loss. Similarly, on disposition of
certain options, futures, and forward contracts and on disposition of debt
securities denominated in a foreign currency, gains or losses attributable to
fluctuations in the value of the foreign currency between the date of
acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains or losses, referred to under the
Code as "section 988" gains or losses, may increase or decrease the amount of a
fund's investment company taxable income to be distributed to members as
ordinary income.
Tax Treatment of Passive Foreign Investment Companies. If a fund invests in
stock of certain foreign investment companies, the fund may be subject to US
federal income taxation on a portion of any "excess distribution" with respect
to, or gain from the disposition of, such stock. The tax would be determined by
allocating on a pro rata basis such distribution or gain to each day of the
fund's holding period for the stock. The distribution or gain so allocated to
any tax year of the fund, other than the tax year of the excess distribution or
disposition, would be taxed to the fund at the highest ordinary income rate in
effect for such year, and the tax would be further increased by an interest
charge to reflect the value of the tax deferral deemed to have resulted from the
ownership of the foreign company's stock. Any amount of distribution or gain
allocated to the tax year of the distribution or disposition would be included
in the fund's investment company taxable income and, accordingly, would not be
taxable to the fund to the extent distributed by the fund as a dividend to its
members.
In lieu of being taxable in the manner described above, each fund may be able to
make an election to include annually in income its pro rata share of the
ordinary earnings and net capital gain of any foreign investment company in
which it invests, regardless of whether it actually received any distributions
from the foreign company. These amounts would be included in the fund's
investment company taxable income and net capital gain which, to the extent
distributed by the fund as ordinary or capital gain dividends, as the case may
be, would not be taxable to the fund. In order to make this election, a fund
would be required to obtain certain annual information from the foreign
investment companies in which it invests, which in many cases may be difficult
to obtain. Alternatively, a fund may be able to elect to mark to market the
fund's PFIC shares at the end of each taxable year, with the result that
unrealized gains would be treated as though they were realized and reported as
ordinary income. Any mark-to-market losses and any loss from an actual
disposition of PFIC shares would be deductible as ordinary losses to the extent
of any net mark-to-market gains included in income in prior years.
<PAGE>
Tax Considerations continued
Foreign Withholding Taxes. Fund income received from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. If more than 50% of the value of a fund's total assets at the close
of its tax year consists of securities of foreign corporations, the fund will be
eligible and may elect to "pass through" to the fund's members the amount of
foreign taxes paid by the fund. Pursuant to this election, a member will be
required to include in gross income (in addition to dividends actually received)
its pro rata share of the foreign taxes paid by the fund and may be entitled
either to deduct its pro rata share of the foreign taxes in computing its
taxable income or to use the amount as a foreign tax credit against its US
federal income tax liability, subject to limitations. Each member will be
notified within 60 days after the close of the fund's tax year whether the
foreign taxes paid by the fund will "pass through" for that year. With the
possible exceptions of the Multi-Asset, International Equity, and Emerging
Markets Funds, it is not anticipated that the funds will be eligible to make
this "pass-through" election. If a fund is not eligible to make the election to
"pass through" to its members its foreign taxes, the foreign taxes it pays will
reduce its investment company taxable income, and distributions by the fund will
be treated as US source income.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the member's US tax attributable to its foreign source taxable
income. For this purpose, if the pass-through election is made, the source of
the fund's income flows through to its members. With respect to the funds,
gains from the sale of securities will be treated as derived from US sources,
and certain currency fluctuation gains (including fluctuation gains from foreign
currency-denominated debt securities, receivables, and payables) will be treated
as ordinary income derived from US sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income (as defined for
purposes of the foreign tax credit), including the foreign source passive income
passed through by the funds. members who are not liable for federal income
taxes other than the excise tax applicable to the net investment income of
private foundations will not be affected by any such "pass through" of foreign
tax credits.
Debt-Financed Shares. If a member that is exempt from federal income taxation
under Code section 501(a) incurs indebtedness in connection with, or as a result
of, its acquisition of fund shares, the shares may be treated as "debt-financed
property" under the Code. In such event, part of all of any income or gain
derived from the member's investment in those shares could constitute "unrelated
business taxable income." Unrelated business taxable income in excess of $1000
in any year is taxable and will require a member to file a federal income tax
return on Form 990-T.
Backup Withholding. A fund may be required to withhold US federal income tax at
the rate of 31% of all amounts distributed or deemed to be distributed as a
result of the automatic reinvestment by the fund of its income and gains in
additional shares of the fund, and all redemption payments made to members who:
1. fail to provide the fund with their correct taxpayer identification numbers,
2. fail to make required certifications, or
3. who have been notified by the Internal Revenue Service that they are subject
to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld will be
credited against a member's US federal income tax liability. Corporate members
and certain other members (including organizations exempt from federal income
taxation under Code section 501(a)) are exempt from such backup withholding.
Other Tax Considerations. A fund may be subject to state, local, or foreign
taxes in any jurisdiction in which the fund may be deemed to be doing business.
In addition, members of a fund may be subject to state, local, or foreign taxes
on distributions from the fund. In many states, fund distributions which are
derived from interest on certain US government obligations may be exempt from
taxation. Members should consult their own tax advisors concerning the
particular tax consequences to them of an investment in the funds.
<PAGE>
Member Information
Member Account Records. Investors Bank & Trust Company ("IBT"), TIP's Transfer
Agent, maintains an account for each member upon which the registration and
transfer of shares are recorded. Any transfers are reflected by bookkeeping
entry, without physical delivery. Certificates representing shares of a
particular fund normally will not be issued to members. Written confirmations
of purchases or redemptions are mailed to each member. Members also receive via
mail monthly account statements, which reflect shares purchased as a result of a
reinvestment of fund distributions.
Requests That Must Be in Writing. IBT will require that a member provide
requests in writing accompanied by a valid signature guarantee when changing
certain information in an account, including wiring instructions. TIP, FAI,
Investors Capital, and IBT will not be responsible for confirming the validity
of written or telephonic requests.
Initial Investment. Foundations seeking to invest through TIP are asked to
complete an Account Application. The completed Application is submitted to FAI
for review (so that FAI may verify the foundation's eligibility for membership).
FAI will contact the foundation immediately if there is a question about
eligibility, if the application is incomplete, or if for any other reason the
account cannot be established by the initial investment date specified by the
foundation on the application. Funds should be wired by the foundation and
received by IBT on the specified initial investment date. Detailed wiring
instructions are provided on the Account Application.
Subsequent Investments. In many cases, foundations may make additional
purchases in existing accounts or increase the number of funds in which they
invest by contacting FAI by phone. To ensure that the transaction can occur on
the date preferred by the foundation, FAI should be provided with as much
advance notice as possible. Under certain circumstances, FAI may ask a member
foundation to verify or supplement the information in the Account Application
that is on file.
Member Voting Rights and Procedures. Each member has one vote in director
elections and on other matters submitted to members for their vote for each
dollar of net asset value held by the member. Matters to be acted upon
affecting a particular fund, including approval of the advisory and manager
agreements with FAI and the Money Managers, respectively, and the submission of
changes of fundamental investment policies of a fund, will require the
affirmative vote of a majority of the members of such fund. The election of
TIP's board of directors and the approval of TIP's independent public
accountants are voted upon by members on a TIP-wide basis. TIP is not required
to hold annual member meetings. Member approval will be sought only for certain
changes in TIP's or a fund's operation and for the election of directors under
certain circumstances. Members may remove directors at a special meeting. A
special meeting of TIP shall be called by the directors upon written request of
members owning at least 10% of TIP's outstanding shares.
Calculation of Performance Data
Yield. A fund's yield quotation is based on all investment income (including
dividends and interest) per share during a particular 30-day (or one month)
period less expenses accrued during the period ("net investment income"). It is
computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula
prescribed by the SEC:
<TABLE>
<S> <C>
YIELD = 2 x { [ ((a - b) / (c x d)) + 1]/6/ - 1}
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares of a fund outstanding during the period that were
entitled to receive dividends; and
d = the maximum offering price per share on the last day of the period.
</TABLE>
<PAGE>
Calculation of Performance Data continued
The funds' yields, as defined above, for the 30-day period ended December 31,
1999, were as follows:
U.S Equity Fund 0.8%
Bond Fund 5.8%
Short-Term Fund 5.6%
Total Return. Quotations of average annual total return are expressed in terms
of the average annual compounded rate of return of a hypothetical investment in
a fund over periods of 1, 5, and 10 years, or the life of the fund, calculated
pursuant to the following formula as prescribed by the SEC:
<TABLE>
<CAPTION>
P(1 + T)/n/ = ERV
<S> <C> <C>
Where: P = a hypothetical initial payment of $1,000;
T = the average annual total return;
n = the number of years; and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of
the period.
</TABLE>
All total return figures assume that all dividends are reinvested when paid.
The funds'* total returns, as defined above, as of December 31, 1999, are as
follows:
<TABLE>
<CAPTION>
12 Months 12 Months 12 Months Annualized
Ended Ended Ended since Inception
12/31/99 12/31/98 12/31/97 Inception Date
<S> <C> <C> <C>
Multi-Asset Fund 22.65% 0.22% 5.51% 11.74% 3/31/1995
International Equity Fund 37.40% 3.03% 0.91% 11.51% 5/31/1994
Emerging Markets Fund 75.49% -33.38% -0.40% 0.31% 5/31/1994
US Equity Fund 18.89% 11.85% 33.01% 21.99% 5/31/1994
Bond Fund -0.45% 7.31% 9.35% 6.74% 5/31/1994
Short-Term Fund 4.93% 5.59% 5.30% 5.50% 5/31/1994
</TABLE>
* Because the US Equity Index, Government Bond Index, and Inflation-Linked Bond
Funds have not yet commenced operations, no performance information is
available.
Market and Manager Comparisons. TIP may also, from time to time, compare its
funds' returns and expense ratios to relevant market indices and manager or
mutual fund averages, such as those reported by Morningstar, Lipper Analytical
Services, Valueline, or other similar services.
Determination of Net Asset Value
Business Days. Currently, there are eleven holidays during the year which are
not Business Days: New Year's Day, Martin Luther King's Birthday, Presidents'
Day, Good Friday, Memorial Day, Fourth of July, Labor Day, Columbus Day,
Veterans' Day, Thanksgiving, and Christmas. TIP will not accept purchase or
redemption orders on these holidays.
Equity Funds. The net asset value per share is determined by dividing the total
market value of each fund's investments and other assets, less any liabilities,
by the total outstanding shares of the fund. Net asset value per share is
determined as of the normal close of the New York Stock Exchange (currently 4:00
p.m. Eastern time) on each day that such exchange is open for business.
<PAGE>
Determination of Net Asset Value continued
Bond and Short-Term Funds. The net asset value per share of each fund is
determined by adding the market values of all the assets of the fund,
subtracting all of the fund's liabilities, dividing by the number of shares
outstanding, and adjusting to the nearest cent. The net asset value is
calculated by TIP's Accounting Agent as of 4:00 p.m. Eastern time on each
Business Day.
Calculating an Individual Security's Value. Securities listed on a US
securities exchange for which market quotations are available are valued at the
last quoted sale price on the day the valuation is made. Price information on
listed securities is taken from the exchange where the securities are primarily
traded. Securities listed on a foreign exchange are valued at the latest quoted
sales price available before the time at which such securities are valued. For
purposes of calculating net asset value per share, all assets and liabilities
initially expressed in foreign currencies (except for the Royal currencies of
the United Kingdom, Ireland, Euros, Australia, and New Zealand) are converted
into US dollars at the bid price of such currencies against US dollars as
provided by an independent pricing supplier. The Royal currencies are converted
at the ask price. All fund securities for which over-the-counter market
quotations are readily available (including asset-backed securities) are valued
at the latest bid price. Deposits and repurchase agreements are valued at their
cost plus accrued interest unless FAI or the Money Manager whose segment of a
fund owns them determines in good faith, under procedures established by and
under the general supervision of TIP's board of directors, that such value does
not approximate the fair value of such assets. Positions (e.g., futures and
options) listed or traded on an exchange are valued at their last sale price on
that exchange or, if there were no sales that day for a particular position, at
the closing bid price. Unlisted securities and listed US securities not traded
on the valuation date for which market quotations are readily available are
valued not exceeding the ask prices nor less than the bid prices. The value of
other assets is determined in good faith by FAI (or the Money Manager whose
segment of the fund owns them) at fair value under procedures established by and
under the general supervision of TIP's board of directors.
Additional Service Providers
Service Provider Selection Criteria. TIP and FAI rely heavily on outside
service providers to perform most functions their directors deem may be
delegated. TIP's fund administrator, custodian, transfer agent, independent
accountant, and legal counsel were selected based on the following criteria:
1. corporate goals and cultures that are consistent with TIP's mission,
2. qualified, well-trained, motivated personnel at all levels of the
organization,
3. a demonstrated commitment to providing high quality services at competitive
prices, and
4. a demonstrated mastery of the regulatory environment in which they and their
clients operate.
Custodian, Fund Accounting Agent, Transfer Agent, Registrar, and Distribution
Disbursing Agent. Investors Bank & Trust Company, 200 Clarendon Street, Boston,
MA 02116, serves as the Custodian of the funds' assets as well as their
accounting agent, transfer agent, registrar, and dividend disbursing agent. As
Custodian, IBT may employ sub-custodians outside the United States which are
approved by TIP's board of directors.
Legal Counsel. Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, DC
20006-2401, is TIP's legal counsel, for which it is compensated directly by TIP.
Independent Accountants. PricewaterhouseCoopers LLP, 1177 Avenue of the
Americas, New York, NY 10036, serves as TIP's independent auditor. Members
receive semi-annual unaudited financial statements and annual audited financial
statements. Members may also receive additional reports concerning the funds or
their Money Managers from FAI.
<PAGE>
Financial Statements
The funds' audited Financial Statements, including the Financial Highlights, for
the period ended December 31, 1999 appearing in the Annual Report to
Shareholders and the report thereon of PricewaterhouseCoopers LLP, independent
auditors, appearing therein are hereby incorporated by reference in this
Statement of Additional Information. The Annual Report to Shareholders will be
delivered to shareholders upon request.
<PAGE>
Inquiries
Requests for the Prospectus, SAI, and Annual or Semi-Annual
Reports as well as other inquiries concerning TIP may be made
by contacting FAI at:
Foundation Advisers, Inc.
2405 Ivy Road
Charlottesville, VA 22903
Phone: 804-817-8200
Fax: 804-817-8231
E-mail: [email protected]
Website: www.tiff.org
<PAGE>
Appendix A
Description of Indices
<PAGE>
Description of Indices
Overview. This Appendix describes the various indices referenced in this
Prospectus and Statement of Additional Information. The indices described below
will be used to gauge the performance of individual Funds and individual Money
Managers, with certain Money Managers' fees tied directly to the Money Managers'
returns relative to the returns produced by their respective indices
(hereinafter referred to as "benchmarks"). The following information with
respect to each index has been supplied by the respective preparer of the index
or has been obtained from other publicly available information.
Explanation of How Indices Will Be Used. The table below denotes the indices
relevant to each Fund and to those Money Managers whose compensation will be
tied to their relative performance. As shown, in some cases the Money Managers
have comparative indices different than the overall benchmark of the Funds that
employ them. In all such cases, however, the securities included in the Money
Managers' benchmarks are subsets of the securities included in the relevant
Fund's performance benchmark. For example, the Lehman Government/Corporate Bond
Index is a subset of the Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
Fund / Money Manager Index
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
TIFF Multi-Asset Fund Inflation + 5% and Constructed Index (described on pages C-2 - C-3)
Aronson + Partners S&P 500 Index
Canyon Capital Management, LP 91-day Treasury bills plus 5% per annum
Delaware International Advisers Ltd. MSCI EAFE Index
Farallon Capital Management, LLC 91-day Treasury bills plus 5% per annum
Harding, Loevner Management, LP MSCI All Country World Free Index
Lone Pine Capital LLC 91-day Treasury bills plus 5% per annum
Oechsle International Advisors, LLC MSCI All Country World Free ex US Index
Seix Investment Advisors, Inc. Lehman Aggregate Bond Index
Wellington Management Company, LLP 75% Energy sector of MSCI World Stock Index; 20% Metals & Mining sector of
MSCI World Stock Index; 5% Paper & Forest Products sector of MSCI World Stock
Index
TIFF International Equity Fund MSCI All Country World ex US Index
Delaware International Advisers Ltd. MSCI EAFE Index
Everest Capital Inc. MSCI Emerging Markets Free Index
Harding, Loevner Management, LP MSCI All Country World Free ex US Index
Marathon Asset Management, Ltd. MSCI All Country World Free ex US Index
Oechsle International Advisors, LLC MSCI All Country World Free ex US Index
TIFF Emerging Markets Fund MSCI Emerging Markets Free Index
City of London Investment Management Co., Ltd. MSCI Emerging Markets Free Index
Emerging Markets Management MSCI Emerging Markets Free Index
Everest Capital Inc. MSCI Emerging Markets Free Index
Explorador Capital Management, LLC MSCI Emerging Markets Free Index
Lazard Asset Management MSCI Emerging Markets Free Index
Table continued on next page
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
Table continued from previous page
<TABLE>
<CAPTION>
<S> <C>
Fund / Money Manager Index
- ------------------------------------------------------------------------------------------------------------------------------------
TIFF US Equity Fund Wilshire 5000 Stock Index
Aronson + Partners - Large Cap S&P 500 Stock Index
Martingale Asset Management, LP Customized for TIFF U.S. Equity Fund
Palo Alto Investors Russell 2000 Stock Index
Shapiro Capital Management Company, Inc. Russell 2000 Index
Westport Asset Management, Inc. Russell 2000 Stock Index
TIFF US Equity Index Fund Wilshire 5000 Stock Index
State Street Global Advisors Wilshire 5000 Stock Index
TIFF Bond Fund Lehman Brothers Aggregate Bond Index
Atlantic Asset Management Partners, LLC Lehman Government/Corporate Bond Index
Seix Investment Advisors, Inc. Lehman Government/Corporate Bond Index
Smith Breeden Associates, Inc. Lehman Mortgage Backed Securities Index
TIFF Government Bond Index Fund Lehman Government 5+ Year Index
State Street Global Advisors Lehman Government 5+ Year Index
TIFF Inflation-Linked Bond Fund 10-year Treasury Inflation Protected Securities
Foundation Advisers, Inc. 10-year Treasury Inflation Protected Securities
TIFF Short-Term Fund Merrill Lynch 182-day Treasury bill Index
Fischer Francis Trees & Watts, Inc. Merrill Lynch 182-day Treasury bill Index
* TIP employs stock index futures to ensure that assets allocated to this Money Manager's "market neutral" portfolio will
participate fully in general stock market movements.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The intent of performance-based fee arrangements entailing benchmarks that are
narrower than the overall benchmark for the Fund employing such arrangements is
to compensate managers fairly based on their performance relative to benchmarks
that reflect adequately their particular focus and investment disciplines. For
example, although the Bond Fund's overall benchmark is the Lehman Aggregate Bond
Index, the Fund's mortgage-backed securities specialist may invest substantially
all of its segment of the Fund in such securities, and it is both fairer to this
Money Manager and in the Fund's best interests to tie this Money Manager's fees
to its performance relative to the mortgage-backed securities component of the
Lehman Aggregate Bond Index rather than to the entire Index. Although
compensating managers based on their performance relative to performance
benchmarks that are narrower than those of the Funds that employ them may mean
that some managers will receive relatively high fees even if the Funds that
employ them underperform their overall benchmarks, careful structuring of fee
arrangements and careful allocation of assets among Money Managers can reduce
the probabilities that a given Fund will fail to meet its performance objective.
As noted in the section of this Prospectus entitled Investment Objectives,
Policies and Restrictions, each Fund seeks to produce total returns net of all
expenses that exceed those of its performance benchmark.
Explanation of "Capitalization Weighting." Several of the indices described
below are "capitalization weighted." Capitalization weighting is a method of
weighting each component security in an index by its market value (also commonly
referred to as "capitalization") so that it will influence the index in
proportion to its respective size. The price of any stock multiplied by the
number of shares outstanding gives the current market value for that particular
issue. This market value determines the relative importance of the security.
Market values for individual stocks are added together to obtain their group
market value. With respect to fixed income indices, the term "capitalization
weighting" is seldom used, but the method used to prepare such indices resembles
capitalization weighting in the sense that each issue's weighting in the index
reflects the total outstanding market value of that issue as of the measurement
date. This method is sometimes referred to as "market value weighting."
TIFF Multi-Asset Fund Benchmark. The Multi-Asset Fund's primary objective is to
produce an inflation-adjusted return of 5% or more over the long term. To
facilitate assessment
A-2
<PAGE>
of active strategies employed by the Fund, the Fund also measures its
performance against a constructed index comprising 25% Wilshire 5000; 25% MSCI
All Country World Free ex US; 20% 3-month Treasury bill plus 5% per annum; 10%
inflation-hedging index; and 20% Lehman Aggregate Bond Index. The inflation-
hedging index has two components: a 5% allocation to resource-related stocks,
comprising 75% MSCI Energy, 20% Metals & Mining, and 5% MSCI Paper & Forest
Products, and a 5% allocation to Inflation-Linked Bonds.
Foreign Common Stock Indices
Morgan Stanley Capital International All Country World Free Stock Index. The
MSCI All Country World Free Index is a capitalization-weighted index intended to
portray the total return produced by a representative group of all domestically
listed stocks in each component country. As of December 31, 1999, the MSCI All
Country World Free Index consisted of 2,192 companies traded on stock markets in
47 countries. The weighting of the Index by country is indicated in the exhibit
entitled MSCI Country Weights. Unlike certain other broad-based indices, the
number of stocks included in the MSCI All Country World Free Index is not fixed
and may vary to enable the Index to continue to reflect the primary home markets
of the constituent countries. Changes in the Index will be announced when made.
When available, TIFF uses the "Free" versions of MSCI indices, which means the
specified index is free of foreign ownership limits or legal restrictions at the
security and country level.
MSCI All Country World Free ex US Stock Index. Similar to the MSCI All Country
World Free Stock Index, the MSCI All Country World Free ex US Stock Index is a
capitalization-weighted index intended to portray the total return produced by a
representative group of all domestically listed stocks in each component
country. As of December 31, 1999, the MSCI All Country World Free ex US Index
consisted of 1,868 companies traded on stock markets in 46 countries. The MSCI
All Country World Free ex US is used as the performance benchmark for the
International Equity Fund because, in the opinion of TIP's Directors, it
represents the universe of non-US stocks in which a properly diversified group
of active international equity managers of the type FAI seeks to assemble
invest.
MSCI Europe, Australia and Far East Index (EAFE). The MSCI EAFE Index is
composed of a sample of companies representative of the market structure of 20
European and Pacific Basin countries and 38 industries worldwide. As of
December 31, 1999, the EAFE Index comprised 967 companies, and represented
approximately 87% of the MSCI All Country World Free ex US Index.
MSCI Emerging Markets Free Index. The MSCI Emerging Markets Free Index is a
market capitalization weighted stock index composed of a sample of companies
representative of the market structure of Asian, Latin American, and European
emerging markets which are open to foreign investment. The Index commenced on
January 1, 1988, and includes 25 countries, representing approximately 60% of
the capitalization of each underlying market. As of December 31, 1999, the
Index comprised 828 companies, and represented approximately 9.5% of the MSCI
All Country World Free ex US Index.
US Common Stock Indices
Russell 2000 Stock Index. The Russell 2000 Stock Index is a capitalization-
weighted index that consists of the smallest 2,000 companies in the Russell 3000
Index, which is composed of 3,000 large US companies, as determined by market
capitalization. The Russell 3000 Index represents approximately 98% of the
investable US equity market. The companies in the Russell 2000 Index represent
approximately 8% of the Russell 3000 Index total market capitalization, with an
A-3
<PAGE>
average capitalization of $526 million as of the latest reconstitution. The
largest company in the index had an approximate market capitalization of $1.3
billion. The market capitalization of each security is adjusted for private
holdings and cross-ownership to determine its weight in the Index. This method
counts only the "investable" portion of the universe, i.e., that segment in
which investors can freely transact shares. Only common stocks belonging to
corporations domiciled in the US and its territories are eligible for inclusion
in the Russell indices.
S&P 500 Stock Index. The S&P 500 Stock Index is a capitalization-weighted index
intended to portray the total return produced by a representative group of US
common stocks. Construction of the index proceeds from industry groups to the
whole. Currently there are four groups: 400 Industrials, 40 Utilities, 20
Transportation, and 40 Financial. Since some industries are characterized by
companies of relatively small stock capitalization, the index does not comprise
the 500 largest US publicly traded companies. Component stocks are chosen
solely with the aim of achieving a distribution by broad industry groupings that
approximates the distribution of these groupings in the New York Stock Exchange
common stock population, taken as the assumed model for the composition of the
total market. Each stock added to the index must represent a viable enterprise
and must be representative of the industry group to which it is assigned. lts
market price movements must, in general, be responsive to changes in industry
affairs. The formula adopted by Standard & Poors is generally defined as a
"base-weighted aggregate" expressed in relatives with the average value for the
base period (1941-43) equal to 10. These group values are expressed as a
relative, or index number, to the base period (1941-43) market value.
Wilshire 5000 Stock Index. The Wilshire 5000 Stock Index is a capitalization-
weighted index which consists of all US common stocks that trade on a regular
basis on either the New York or American Stock Exchange or on the Nasdaq over-
the-counter market. More than 7,000 stocks are included in the Wilshire 5000
Index. These stocks include the large-capitalization stocks that comprise the
S&P 500 Index (with the exception of Royal Dutch and Unilever, N.V., which trade
on the New York Stock Exchange as ADRs) as well as the medium- and small-
capitalization companies that comprise the Wilshire 4500 Index. The Wilshire
5000 is used as the performance benchmark for the U.S. Equity and US Equity
Index Funds because, in the opinion of TIP's Directors, it represents the
universe of stocks in which most active domestic equity managers invest and is
representative of the performance of publicly traded domestic equities most
institutional investors purchase. The capitalization of the Index is
approximately 63% NYSE, 1% AMEX, and 36% Nasdaq.
A-4
<PAGE>
Bond Indices
Lehman Brothers Aggregate Bond Index. This Index measures the total investment
return (capital change plus income) provided by a universe of fixed income
securities, weighted by the market value outstanding of each security. The
Index encompasses four classes of investment grade fixed income securities in
the United States: US Treasury and agency securities, corporate debt
obligations, mortgage-backed securities, and asset-backed securities. As of
December 31, 1999, these four classes represented the following proportions of
the Index's total market value:
US Treasury and Agency Securities 42%
Corporate Debt Securities 22%
Mortgage-Backed Securities 34%
Asset-Backed Securities 1%
Commercial Mortgage-Backed Securities 1%
As of December 31, 1999, approximately 5,500 issues (including bonds, notes,
debentures, and mortgage issues) were included in the Index, representing more
than $5.4 trillion in market value. The securities included in the Index
generally meet the following criteria, as defined by Lehman Brothers: an
effective maturity of not less than one year; an outstanding market value of at
least $100 million for US Government issues and $25 million for all other
issues; and investment grade quality -- i.e., rated a minimum of Baa by Moody's
Investors Service, Inc. or rated a minimum BBB by Standard & Poors Corporation.
Price, coupon, and total return are reported for all sectors on a month-end to
month-end basis. All returns are market value weighted inclusive of accrued
interest.
On December 31, 1999, the Index's effective weighted average maturity and
duration were 8.86 years and 4.92 years, respectively, and the weighted average
quality of issues comprising the Index was Aaa1 (using credit ratings of Moody's
Investor Service, Inc.).
Lehman Brothers Government/Corporate Index. This Index, a subset representing
approximately 63% of the Lehman Brothers Aggregate Bond Index, comprises the
Government and Corporate Bond Indices. The Government Bond Index comprises (1)
all public obligations of the US Treasury, excluding flower bonds and foreign
targeted issues, (2) all publicly issued debt of US Government agencies and
quasi-federal corporations, and (3) corporate debt guaranteed by the US
Government. The Corporate Bond Index includes (1) all publicly issued, fixed-
rate, non-convertible investment grade domestic corporate debt, and (2) Yankee
bonds, which are dollar-denominated SEC registered public, non-convertible debt
issued or guaranteed by foreign sovereign governments, municipalities or
governmental agencies, or international agencies.
Lehman Brothers Mortgage-Backed Securities Index. This Index is also a subset
of the Lehman Brothers Aggregate Bond Index, representing approximately 34% of
the Aggregate Index. This Index comprises all fixed-rate securities backed by
mortgage pools of the GNMA, FHLMC, and FNMA. Graduated Payment Mortgages (GPMs)
are included, but Graduated Equity Mortgages (GEMs) are not included.
Lehman Brothers Government 5+ Year Index. The Lehman Brothers Government 5+
Year Index is a market capitalization-weighted index of fixed income securities,
issued or guaranteed by the US Treasury Department and various US government
agencies, with five or more years remaining until final maturity. As of
December 31, 1999, US Treasury securities composed approximately 81% of the
Index's capitalization. The duration of the Index was 8.4 years as of December
31, 1999, and the average maturity was 15.7 years.
A-5
<PAGE>
10-year Treasury Inflation Protected Securities. Treasury inflation protected
securities are issued by the US Treasury Department. The principal value of
these securities is indexed to the Consumer Price Index. The principal value
increases in inflationary periods and decreases in deflationary periods. While
semi-annual coupon payments are based on the adjusted principal value, the
principal adjustment is paid only at maturity. Should deflation occur during
the life of the security, the US Treasury Department guarantees that the
maturity value of the security will not be less than 100% of face value.
Short-Term Indices
Merrill Lynch 91-day Treasury Bill Index. The Merrill Lynch 91-Day Treasury
Bill Index is a 3-month constant maturity total rate of return index. This
calculation includes a daily mark-to-market of the portfolio, and upon the
issuance of a "new" Treasury bill, the "old" Treasury bill is sold and the gain
or loss is included in the portfolio return.
Merrill Lynch 182-day Treasury Bill Index. The Merrill Lynch 182-Day Treasury
Bill Index is a 6-month constant maturity total rate of return index. This
calculation includes a daily mark-to-market of the portfolio, and upon the
issuance of a "new" Treasury bill, the "old" Treasury bill is sold and the gain
or loss is included in the portfolio return.
A-6
<PAGE>
MSCI Country Weights
As of December 31, 1999
<TABLE>
<CAPTION>
MSCI MSCI MSCI
All Country All Country MSCI Emerging
Index: World Free World Free ex US EAFE Markets Free
Benchmark for: CERTAIN MAF TIFF International Certain IEF TIFF Emerging
Managers Equity Fund Managers Markets Fund
<S> <C> <C> <C>
Europe 30.9% 57.7% 66.6%
Austria 0.1% 0.2% 0.2%
Belgium 0.4% 0.8% 0.9%
Denmark 0.4% 0.7% 0.8%
Finland 1.4% 2.6% 3.0%
France 4.8% 8.9% 10.3%
Germany 4.9% 9.1% 10.5%
Ireland 0.2% 0.4% 0.4%
Italy 2.0% 3.7% 4.2%
Netherlands 2.4% 4.5% 5.2%
Norway 0.2% 0.3% 0.4%
Portugal 0.2% 0.4% 0.5%
Spain 1.2% 2.3% 2.7%
Sweden 1.2% 2.3% 2.7%
Switzerland 2.6% 4.9% 5.7%
United Kingdom 8.9% 16.6% 19.2%
Pacific 15.5% 29.0% 33.4%
Australia 1.1% 2.1% 2.5%
Hong Kong 1.1% 2.0% 2.3%
Japan 12.7% 23.8% 27.4%
New Zealand 0.1% 0.1% 0.2%
Singapore Free 0.5% 0.9% 1.1%
North America 48.5% 3.8%
Canada 2.0% 3.8%
United States 46.5%
Emerging Markets 5.1% 9.5% 100.0%
Argentina 0.1% 0.2% 2.1%
Brazil Free 0.5% 0.9% 9.9%
Chile 0.2% 0.3% 3.5%
China Free 0.0% 0.0% 0.4%
Colombia 0.0% 0.0% 0.4%
Czech Republic 0.0% 0.1% 0.6%
Greece 0.3% 0.6% 6.5%
Hungary 0.1% 0.1% 1.2%
India 0.4% 0.8% 8.4%
Indonesia Free 0.1% 0.2% 1.7%
Israel 0.2% 0.4% 4.1%
Jordan 0.0% 0.0% 0.1%
Korea 0.7% 1.3% 13.9%
Malaysia
Mexico
Mexico Free 0.6% 1.1% 11.6%
Pakistan 0.0% 0.0% 0.4%
Peru 0.0% 0.1% 0.7%
Philippines Free
Philippines Free 0.1% 0.1% 1.2%
Poland 0.1% 0.1% 1.3%
Russia 0.1% 0.2% 2.5%
South Africa 0.5% 1.0% 10.8%
Sri Lanka 0.0% 0.0% 0.0%
Taiwan 0.6% 1.0% 11.0%
Thailand Free 0.2% 0.3% 3.0%
Turkey 0.2% 0.4% 4.1%
Venezuela 0.0% 0.1% 0.6%
Total 100.0% 100.0% 100.0% 100.0%
</TABLE>
* Taiwan is included in the Emerging Markets Free, the ACWF, and the ACWFxUS
Indices at 50% of its market capitalization.
Source: Morgan Stanley Capital International Perspective, December 1999.
Note: Numbers may not add to totals due to rounding.
A-7
<PAGE>
Appendix B
Quality Rating Descriptions
<PAGE>
Quality Rating Descriptions
Standard & Poors Corporation
AAA. Bonds rated AAA are highest grade debt obligations. This rating indicates
an extremely strong capacity to pay principal and interest.
AA. Bonds rated AA also qualify as high-quality obligations. Their capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only by a small degree.
A. Bonds rated A have a strong capacity to pay principal and interest, although
they are more susceptible to the adverse effects of changes in circumstances and
economic conditions.
BBB. Bonds rated BBB are regarded as having adequate capacity to pay interest
or principal. Although these bonds normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and principal.
BB and Lower. Bonds rated BB, B, CCC, CC, and C are regarded, on balance, as
predominately speculative with respect to the issuer's capacity to pay interest
and principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such bonds may have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
The ratings AA to C may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories. Municipal notes
issued since July 29, 1984 are designated "SP-1," "SP-2," or "SP-3." The
designation SP-1 indicates a very strong capacity to pay principal and interest.
A plus sign is added to those issues determined to possess overwhelming safety
characteristics.
A-1. Standard & Poors Commercial Paper ratings are current assessments of the
likelihood of timely payments of debts having original maturity of no more than
365 days. The A-1 designation indicates that the degree of safety regarding
timely payment is very strong.
A-2. The capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Moody's Investors Service, Inc.
Aaa. Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to
change, foreseeable changes are most unlikely to impair the fundamentally strong
position of such issues.
Aa. Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities, or because fluctuations of protective elements
may be of greater amplitude, or because there may be other elements present that
make the long-term risks appear somewhat larger than the Aaa securities.
A. Bonds rated A possess many favorable investment attributes and may be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
B-1
<PAGE>
Baa. Baa rated bonds are considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements because
their future cannot be considered as well assured. Uncertainty of position
characterizes bonds in this class, because the protection of interest and
principal payments may be very moderate and not well safeguarded.
B and Lower. Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the security over any long period of time may be
small. Bonds which are rated Caa are of poor standing. Such securities may be
in default of there may be present elements of danger with respect to principal
or interest. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. Bonds which are rated C are the lowest rated class of
bonds and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through C in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Moody's ratings for state, municipal and other short-term obligations are
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in short-
term borrowing, while various factors of great importance in long-term borrowing
risk are of lesser importance in the short run.
MIG-1. Notes bearing this designation are of the best quality, enjoying strong
protection, whether from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or both.
MIG-2. Notes bearing this designation are of favorable quality, with all
security elements accounted for, but lacking the undeniable strength of the
previous grade. Market access for refinancing, in particular, is likely to be
less well established.
P-1. Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. The designation "Prime-1" or "P-1" indicates the highest
quality repayment capacity of the rated issue.
P-2. Issuers have a strong capacity for repayment of short-term promissory
obligations.
Thomson Bankwatch, Inc.
A. The company issuing the debt obligation possesses an exceptionally strong
balance sheet and earnings record, translating into an excellent reputation and
unquestioned access to its natural money markets. If weakness or vulnerability
exists in any aspect of the company's business, it is entirely mitigated by the
strengths of the organization.
A/B. The company issuing the debt obligation is very solid financially with a
favorable track record and no readily apparent weakness. Its overall risk
profile, while low, is not quite as favorable as that of companies in the
highest rating category.
IBCA Limited
B-2
<PAGE>
A1. Short-term obligations rated A1 are supported by a very strong capacity for
timely repayment. A plus sign is added to those issues determined to possess
the highest capacity for timely payment.
B-3
<PAGE>
Part C OTHER INFORMATION
Item 23. Exhibits
- -------
The following exhibits are incorporated herein by reference, are not required to
be filed or are filed herewith (as indicated):
(a) Articles of Incorporation, dated December 24, 1993.
(previously filed as Exhibit No. (1) to Pre-Effective
Amendment No. 1 to Registrant's Registration Statement on
Form N-1A).
(b) By-laws. (previously filed as Exhibit No. (2) to Pre-
Effective Amendment No. 2 to Registrant's Registration
Statement on Form N-1A).
(c) Not Applicable.
(d1) Advisory Agreement, dated February 10, 1994, between the
Registrant (TIFF U.S. Equity Fund) and Foundation Advisers,
Inc. (previously filed as Exhibit No. (5a) to Pre-Effective
Amendment No. 3 to Registrant's Registration Statement on N-
1A).
(d2) Advisory Agreement, dated February 10, 1994, between the
Registrant (TIFF International Equity Fund) and Foundation
Advisers, Inc. (previously filed as Exhibit No. (5b) to Pre-
Effective Amendment No. 3 to Registrant's Registration
Statement on N-1A).
(d3) Advisory Agreement, dated February 10, 1994, between the
Registrant (TIFF Emerging Markets Fund) and Foundation
Advisers, Inc. (previously filed as Exhibit No. (5c) to Pre-
Effective Amendment No. 3 to Registrant's Registration
Statement on N-1A).
(d4) Advisory Agreement, dated February 10, 1994, between the
Registrant (TIFF Bond Fund) and Foundation Advisers, Inc.
(previously filed as Exhibit No. (5d) to Pre-Effective
Amendment No. 3 to Registrant's Registration Statement on N-
1A).
(d5) Advisory Agreement, dated February 10, 1994, between the
Registrant (TIFF Short-Term Fund) and Foundation Advisers,
Inc. (previously filed as Exhibit No. (5e) to Pre-Effective
Amendment No. 3 to Registrant's Registration Statement on N-
1A).
(d6) Money Manager Agreement, dated April 8, 1994, between the
Registrant (TIFF Bond Fund) and Atlantic Asset Management
Partners, Inc. (previously filed as Exhibit No. (5g) to Pre-
Effective Amendment No. 3 to Registrant's Registration
Statement on N1-A).
1
<PAGE>
(d7) Money Manager Agreement, dated April 18, 1994, between the
Registrant (TIFF International Equity Fund) and Delaware
International Advisers, Ltd. (previously filed as Exhibit
No. (5k) to Pre-Effective Amendment No. 3 to Registrant's
Registration Statement on N1-A).
(d8) Money Manager Agreement, dated May 16, 1994, between the
Registrant (TIFF Bond Fund) and Fischer Francis Trees &
Watts, Inc. (previously filed as Exhibit No. (5o) to Post-
Effective Amendment No.1 to Registrant's Registration
Statement on N1-A).
(d9) Money Manager Agreement, dated May 16, 1994, between the
Registrant (TIFF Short-Term Fund) and Fischer Francis Trees
& Watts, Inc. (previously filed as Exhibit No. (5p) to
Post-Effective Amendment No. 1 to Registrant's Registration
Statement on N1-A).
(d10) Money Manager Agreement, dated April 18, 1994, between the
Registrant (TIFF International Equity Fund) and Harding,
Loevner Management, L.P. (previously filed as Exhibit No.
(5r) to Pre-Effective Amendment No. 3 to Registrant's
Registration Statement on N1-A).
(d11) Money Manager Agreement, dated March 16, 1994, between the
Registrant (TIFF International Equity Fund) and Marathon
Asset Management, Ltd. (previously filed as Exhibit No.
(5w) to Pre-Effective Amendment No. 3 to Registrant's
Registration Statement on N1-A).
(d12) Money Manager Agreement, dated March 16, 1994, between the
Registrant (TIFF U.S. Equity Fund) and Palo Alto Investors
(previously filed as Exhibit No. (5y) to Pre-Effective
Amendment No. 3 to Registrant's Registration Statement on
N1-A).
(d13) Money Manager Agreement, dated March 16, 1994, between the
Registrant (TIFF Bond Fund) and Seix Investment Advisors,
Inc. (previously filed as Exhibit No. (5z) to Pre-Effective
Amendment No. 3 to Registrant's Registration Statement on
N1-A).
(d14) Money Manager Agreement, dated April 18, 1994, between the
Registrant (TIFF Bond Fund) and Smith Breeden Associates,
Inc. (previously filed as Exhibit No. (5aa) to Pre-
Effective Amendment No. 3 to Registrant's Registration
Statement on N1-A).
(d15) Money Manager Agreement, dated April 18, 1994, between the
Registrant (TIFF Short-Term Fund) and Smith Breeden
Associates, Inc. (previously filed as Exhibit No. (5bb) to
Pre-Effective Amendment No. 3 to Registrant's Registration
Statement on N1-A).
(d16) Money Manager Agreement, dated March 16, 1994, between the
Registrant (TIFF U.S. Equity Fund) and Westport Asset
Management, Inc. (previously filed as Exhibit No. (5ee) to
Pre-Effective Amendment No. 3 to Registrant's Registration
Statement on N1-A).
2
<PAGE>
(d17) Money Manager Agreement, dated March 31, 1995 between the
Registrant (TIFF Multi-Asset Fund) and Delaware
International Advisers, Ltd. (previously filed as Exhibit
No. 5hh) to Post-Effective Amendment No. 4 to Registrant's
Registration Statement on N1-A).
(d18) Money Manager Agreement, dated March 31, 1995 between the
Registrant (TIFF Multi-Asset Fund) and Harding, Loevner
Management, L.P. (previously filed as Exhibit No. (5jj) to
Post-Effective Amendment No. 4 to Registrant's
Registration Statement on N1-A).
(d19) Money Manager Agreement, dated March 31, 1995 between the
Registrant (TIFF International Equity Fund) and Lazard
Freres Asset Management (previously filed as Exhibit No.
(5kk) to Post-Effective Amendment No. 4 to Registrant's
Registration Statement on N1-A).
(d20) Money Manager Agreement, dated March 31, 1995 between the
Registrant (TIFF Multi-Asset Fund) and Wellington
Management Company (previously filed as Exhibit No. (5pp)
to Post-Effective Amendment No. 4 to Registrant's
Registration Statement on N1-A).
(d21) Money Manager Agreement, dated January 5, 1996 between the
Registrant (TIFF Emerging Markets Fund) and Lazard Freres
Asset Management (previously filed as Exhibit (5xx) to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N1-A).
(d22) Advisory Agreement, dated March 31, 1995, between the
Registrant (TIFF Multi-Asset Fund) and Foundation
Advisers, Inc. (previously filed as Exhibit (5zz) to Post-
Effective Amendment No. 5 to Registrant's Registration
Statement on Form N1-A).
(d23) Money Manager Agreement, dated January 1, 1997, between
the Registrant (TIFF Emerging Markets Fund) and Emerging
Markets Management (previously filed as Exhibit (5aab) to
Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N1-A).
(d24) Money Manager Agreement, dated June 2, 1997, between the
Registrant (TIFF Multi-Asset Fund) and Shapiro Capital
Management Co. (previously filed as Exhibit (5aad) to
Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N1-A).
(d25) Money Manager Agreement, dated July 1, 1997, between the
3
<PAGE>
Registrant (TIFF Multi-Asset Fund) and Seix Investment
Advisors Inc. (previously filed as Exhibit (5aae) to Post-
Effective Amendment No. 7 to Registrant's Registration
Statement on Form N1-A).
(d26) Money Manager Agreement, dated December 24, 1998, between
the Registrant (TIFF U.S. Equity Fund) and Aronson +
Partners (previously filed as Exhibit (d)(52) to Post-
Effective Amendment No. 8 to Registrant's Registration
Statement on Form N1-A).
(d27) Money Manager Agreement, dated September , 1998, between
the Registrant (TIFF U.S. Equity Fund and TIFF Multi-Asset
Fund) and Martingale Asset Management, L.P., (previously
filed as Exhibit (d)(54) to Post-Effective Amendment No. 8
to Registrant's Registration Statement on Form N1-A).
(d28) Money Manager Agreement, dated January 4, 2000, between
the Registrant (TIFF U.S. Equity Fund and TIFF Multi-Asset
Fund) and Oechsle International Advisors, LLC.,
(previously filed as Exhibit (d)(28) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on
Form N1-A).
(d29) Advisory Agreement, dated ______ __, 2000 between the
Registrant (TIFF Inflation-Linked Bond Fund) and
Foundation Advisers, Inc. (to be filed by amendment to
this registration statement).
(d30) Money Manager Agreement, dated ______ __, 2000, between
the Registrant (TIFF U.S. Equity Index Fund and TIFF
Government Bond Index Fund) and State Street Global
Advisors (to be filed by amendment to this registration
statement).
(e) Distribution Agreement, dated January 1, 2000, between
Registrant, First Fund Distributors, Inc. and Investors
Bank & Trust, (previously filed as Exhibit (e) to Post-
Effective Amendment No. 10 to Registrant's Registration
Statement on Form N1-A).
(f) Not Applicable.
(g) Custodian Agreement, dated February 10, 1994, between the
Registrant and Investors Bank & Trust Company. (previously
filed as Exhibit No. (8) to Pre-Effective Amendment No. 3
to Registrant's Registration Statement on N-1A).
(g1) Amendment No. 1 to the Amended and Restated Custodian
Agreement between TIFF Investment Program, Inc. and
Investors Bank & Trust Company dated March 14, 1997
(previously filed as Exhibit (8a) to Post-Effective
Amendment No. 6 to Registrant's Registration Statement on
Form N1-A).
4
<PAGE>
(g2) Delegation Agreement, dated May 12, 1998 between the
Registrant and Investors Bank & Trust Company(previously
filed as Exhibit (g)(2) to Post-Effective Amendment No. 8
to Registrant's Registration Statement on Form N1-A).
(g3) Amendment to Custodian Agreement, between the Registrant
and Investors Bank & Trust Company dated May 29, 1998
(previously filed as Exhibit (g)(3) to Post-Effective
Amendment No. 8 to Registrant's Registration Statement on
Form N1-A).
(h) Transfer Agency and Service Agreement, dated February 10,
1994, between the Registrant and Investors Bank & Trust
Company. (previously filed as Exhibit No. (9a) to Pre-
Effective Amendment No. 3 to Registrant's Registration
Statement on N-1A).
(h1) Administration Agreement, dated May 29, 1998, between the
Registrant and Investors Capital Services, Inc.,
(previously filed as Exhibit (h)(3) to Post-Effective
Amendment No. 8 to Registrant's Registration Statement on
Form N1-A).
(h2) Code of Ethics of TIFF Investment Program, Inc. and
Foundation Advisers, Inc., (previously filed as Exhibit
(h2) to Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N1-A).
(h3) Code of Ethics of Aronson + Partners, (previously filed as
Exhibit (h3) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N1-A).
(h4) Code of Ethics of Atlantic Asset Management, LLC,
(previously filed as Exhibit (h4) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on
Form N1-A).
(h5) Code of Ethics of Delaware International Advisers Ltd.,
(previously filed as Exhibit (h5) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on
Form N1-A).
(h6) Code of Ethics of Emerging Markets Management, LLC,
(previously filed as Exhibit (h6) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on
Form N1-A).
(h7) Code of Ethics of Fischer Francis Trees & Watts, Inc.,
(previously filed as Exhibit (h7) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on
Form N1-A).
(h8) Code of Ethics of Harding, Loevner Management, LP,
(previously filed as Exhibit (h8) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on
Form N1-A).
5
<PAGE>
(h9) Code of Ethics of Lazard Asset Management, (previously
filed as Exhibit (h9) to Post-Effective Amendment No. 10
to Registrant's Registration Statement on Form N1-A).
(h10) Code of Ethics of Marathon Asset Management, Ltd.,
(previously filed as Exhibit (h10) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on
Form N1-A).
(h11) Code of Ethics of Martingale Asset Management, L.P.,
(previously filed as Exhibit (h11) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on
Form N1-A).
(h12) Code of Ethics of Oechsle International Advisors, LLC,
(previously filed as Exhibit (h12) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on
Form N1-A).
(h13) Code of Ethics of Palo Alto Investors, (previously filed
as Exhibit (h13) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N1-A).
(h14) Code of Ethics of Seix Investment Advisors, Inc.,
(previously filed as Exhibit (h14) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on
Form N1-A).
(h15) Code of Ethics of Shapiro Capital Management Co., Inc.,
(previously filed as Exhibit (h15) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on
Form N1-A).
(h16) Code of Ethics of Smith Breeden Associates, Inc.,
(previously filed as Exhibit (h16) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on
Form N1-A).
(h17) Code of Ethics of Wellington Management Company,
(previously filed as Exhibit (h17) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on
Form N1-A).
(h18) Code of Ethics of Westport Asset Management, Inc.,
(previously filed as Exhibit (h18) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on
Form N1-A).
(i) Opinion and Consent of Counsel. (previously filed as
Exhibit No. (10) to Pre-Effective Amendment No. 3 to
Registrant's Registration Statement on N-1A).
(j) Consent of the Independent Auditor. (previously filed as
Exhibit (j) to Post -Effective Amendment No. 10 to
Registrant's Registration Statement on N-1A).
6
<PAGE>
(k) Not Applicable.
(l) Purchase Agreement, dated March 29, 1994, for Initial
Capital between Registrant and The John D. and Catherine T.
MacArthur Foundation. (previously filed as Exhibit No. (13)
to Pre-Effective Amendment No. 3 to Registrant's
Registration Statement on N-1A).
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
Item 24
Persons Controlled by or under Common Control with the Registrant
- -----------------------------------------------------------------
None.
Item 25
Indemnification.
- ---------------
The Registrant shall indemnify directors, officers, employees and agents of
the Registrant against judgements, fines, settlements and expenses to the
fullest extent allowed, and in the manner provided, by applicable federal and
Maryland law, including Section 17(h) and (i) of the Investment Company Act of
1940. In this regard, the Registrant undertakes to abide by the provisions of
Investment Company Act Releases No. 11330 and 7221 until amended or superseded
by subsequent interpretation of legislative or judicial action.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, Registrant understands that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a director, officer or
controlling person of Registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
Item 26
Business and Other Connections of Investment Adviser.
- ----------------------------------------------------
7
<PAGE>
The business and other connections of Foundation Advisers, Inc. (the Adviser) is
on the Uniform Application for Investment Adviser Registration ("Form ADV") as
currently on file with the Commission (File No. 801-45618) the text of which is
hereby incorporated by reference.
Item 27
Principal Underwriters.
- ----------------------
(a) In addition to the Registrant, First Fund Distributors, Inc. currently acts
as distributor to the following funds:
Advisors Series Trust
Brandes Investment Funds
Fleming Capital Mutual Fund Group, Inc.
Fremont Mutual Funds, Inc.
Guiness Flight Investment Funds
Jurika & Voyles Fund Group
Kayne Anderson Mutual Funds
Masters' Select Investment Trust
O'Shaughnessy Funds, Inc.
PIC Investment Trust
Professionally Managed Portfolios
Puget Sound Alternative Investment Series Trust
The Purisima Funds
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group, Inc.
(b) For each Director or officer of First Fund Distributors, Inc.
- --------------------------------------------------------------------------------
Name and Principal Positions & Offices with Positions & Offices
Business Address Distributor with Registrant
- --------------------------------------------------------------------------------
Robert H. Wadsworth President & Treasurer None
4455 Camelback Road
Suite 261-E
Phoenix, AZ 85018
- --------------------------------------------------------------------------------
Steven J. Pagglioli Vice President & Secretary None
4455 Camelback Road
Suite 261-E
Phoenix, AZ 85018
- --------------------------------------------------------------------------------
Eric M. Banhazl Vice President None
4455 Camelback Road
Suite 261-E
Phoenix, AZ 85018
- --------------------------------------------------------------------------------
(c) Not applicable.
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Item 28
Location of Accounts and Records.
- --------------------------------
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended (the "1940
Act"), and the rules thereunder will be maintained at the offices of the
Investment Adviser, the Custodian and the Administrator.
Foundation Advisers, Inc.
2405 Ivy Road
Charlottesville, Virginia 22903
Investors Capital Services, Inc.
600 Fifth Avenue, 26/th/ Floor
New York, New York 10020
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02117-9130
Item 29
Management Services.
- -------------------
Not applicable.
Item 30
Undertakings.
- ------------
Not applicable
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, duly authorized, in the City of
Charlottesville and the Commonwealth of Virginia on the 5/th/ day of May,
2000.
TIFF INVESTMENT PROGRAM, INC.
Registrant
By: /s/ David A. Salem
------------------
David A. Salem, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement had been signed below by the following persons in the
capacities and on the dates indicated.
/s/ David A. Salem */s/ William F. Nichols
- ---------------------------------------- ------------------------------
David A. Salem, President and Director William F. Nichols, Director
/s/ Esther Cash */s/ Sheryl L. Johns
- ---------------------------------------- ------------------------------
Esther Cash, Principal Financial Officer Sheryl L. Johns, Director
*/s/ John E. Craig */s/ Fred B. Renwick
- ---------------------------------------- ------------------------------
John E. Craig, Director Fred B. Renwick, Director
*By: */s/ Esther Cash
----------------------------------
Esther Cash, Attorney-in-Fact
Date: May 5, 2000
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EXHIBIT INDEX
Exhibit No.
- -----------
(d29) Advisory Agreement, dated ______ __, 2000 between the Registrant
(TIFF Inflation-Linked Bond Fund) and Foundation Advisers, Inc.
(to be filed by amendment to this registration statement).
(d30) Money Manager Agreement, dated ______ __, 2000, between the
Registrant (TIFF U.S. Equity Index Fund and TIFF Government Bond
Index Fund) and State Street Global Advisors (to be filed by
amendment to this registration statement).
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